1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 13, 2001
REGISTRATION NO. 333-50572
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ARROW ELECTRONICS, INC. NEW YORK 11-1806155
(EXACT NAME OF REGISTRANT (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
AS SPECIFIED IN CHARTER) OF INCORPORATION IDENTIFICATION NUMBER)
OR ORGANIZATION)
5065
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
25 HUB DRIVE
MELVILLE, NEW YORK 11747
(516) 391-1300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT E. KLATELL
EXECUTIVE VICE PRESIDENT
ARROW ELECTRONICS, INC.
25 HUB DRIVE
MELVILLE, NEW YORK 11747
(516) 391-1300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
WITH A COPY TO:
HOWARD S. KELBERG
DONALD B. BRANT
MILBANK, TWEED, HADLEY & MCCLOY LLP
ONE CHASE MANHATTAN PLAZA
NEW YORK, NEW YORK 10005
(212) 530-5000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement until all the
securities hereunder have been sold.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, check the following box.
[ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
------------
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
2
EXPLANATORY NOTE
The securities registered hereby may be offered from time to time by means
of the basic prospectus included herein and, when a particular series of such
securities is being offered or sold, such series of securities may be offered or
sold by means of the basic prospectus included herein and an applicable
prospectus supplement. If any series of securities registered hereby are offered
or sold in reliance upon the procedures contemplated by Rule 430A under the
Securities Act of 1933, as amended, such series of securities will be offered
or sold by means of the basic prospectus included herein and a prospectus
supplement in the form included herein. Series of securities registered hereby
which are not offered or sold in reliance upon the procedures contemplated by
Rule 430A may be offered or sold by means of the basic prospectus included
herein and a prospectus supplement in a form other than the form of prospectus
supplement included herein.
3
The information in this prospectus supplement is not complete and may be
changed. This prospectus supplement and the accompanying prospectus are not
an offer to sell these securities and we are not soliciting offers to buy
these securities in any state where the offer or sale is not permitted.
PROSPECTUS SUPPLEMENT (Subject to Completion) Issued February 13, 2001
(To Prospectus dated February 13, 2001, Subject to Completion)
$
[ARROW LOGO]
Arrow Electronics, Inc.
ZERO COUPON CONVERTIBLE SENIOR DEBENTURES DUE 2021
------------------------
HOLDERS MAY CONVERT THE DEBENTURES INTO SHARES OF OUR COMMON STOCK AT ANY TIME
PRIOR TO MATURITY AT A CONVERSION RATE OF SHARES PER $1,000 PRINCIPAL
AMOUNT AT MATURITY. THE CONVERSION RATE WILL NOT BE ADJUSTED FOR ACCRUED
ORIGINAL ISSUE DISCOUNT, BUT WILL BE SUBJECT TO ADJUSTMENT IN CERTAIN EVENTS.
------------------------
ON OR AFTER FEBRUARY , 2006, WE MAY REDEEM ANY OF THE DEBENTURES AT THE
REDEMPTION PRICES SET FORTH IN THIS PROSPECTUS SUPPLEMENT. HOLDERS MAY REQUIRE
US TO REPURCHASE THE DEBENTURES AT THE REPURCHASE PRICES SET FORTH IN THIS
PROSPECTUS SUPPLEMENT ON FEBRUARY , 2006, FEBRUARY , 2011 AND FEBRUARY ,
2016.
------------------------
FOR A MORE DETAILED DESCRIPTION OF THE DEBENTURES, SEE "DESCRIPTION OF
DEBENTURES" BEGINNING ON PAGE S-22.
------------------------
OUR COMMON STOCK IS LISTED ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL
"ARW." ON FEBRUARY 12, 2001, THE LAST REPORTED SALE PRICE OF OUR COMMON STOCK ON
THE NEW YORK STOCK EXCHANGE WAS $28.91 PER SHARE.
------------------------
PRICE % AND ACCRUED ORIGINAL DISCOUNT, IF ANY
------------------------
We have granted the underwriters the right to purchase up to an additional
$ aggregate principal amount at maturity of debentures to cover
over-allotments.
------------------------
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus
supplement or the accompanying prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
------------------------
Morgan Stanley & Co. Incorporated expects to deliver the debentures to
purchasers on February , 2001.
------------------------
MORGAN STANLEY DEAN WITTER CREDIT SUISSE FIRST BOSTON
GOLDMAN, SACHS & CO.
BANC OF AMERICA SECURITIES LLC
JP MORGAN
ROBERTSON STEPHENS
, 2001
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
------------------------------------- PAGE
-------
Information Relating to
Forward-Looking Statements......... S-2
Prospectus Supplement Summary........ S-3
Use of Proceeds...................... S-7
Common Stock Price Range............. S-7
Dividend Policy...................... S-7
Capitalization....................... S-8
Selected Historical Financial Data... S-9
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... S-10
Business............................. S-14
Management........................... S-21
Description of Debentures............ S-22
Certain United States Federal Income
Tax Considerations................. S-33
Underwriters......................... S-36
Legal Matters........................ S-37
Experts.............................. S-37
PROSPECTUS
------------------------------------- PAGE
-------
About This Prospectus................ 2
Where You Can Find More Information.. 2
Forward Looking Statements........... 3
Arrow Electronics, Inc............... 3
Use of Proceeds...................... 4
Consolidated Ratios of Earnings To
Fixed Charges...................... 4
Description of Debt Securities....... 5
Description of Capital Stock......... 21
Description of Warrants.............. 23
Plan of Distribution................. 24
Validity of Securities............... 25
Experts.............................. 25
This document is in two parts. The first part is this prospectus supplement,
which describes the terms of the offering of convertible senior debentures and
also adds to and updates information contained in the accompanying prospectus
and the documents incorporated by reference into the prospectus. The second part
is the accompanying prospectus, which gives more general information, some of
which may not apply to the convertible senior debentures.
You should rely only on the information contained in or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We have
not authorized anyone to provide you with information that is different from
that contained or incorporated by reference in this prospectus supplement or the
accompanying prospectus. We are offering to sell the convertible senior
debentures only where offers and sales are permitted. The information contained
in or incorporated by reference in this prospectus supplement and the
accompanying prospectus is accurate only as of the date of this prospectus
supplement, regardless of the time of delivery of this prospectus supplement or
of any sale of the convertible senior debentures.
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
This prospectus supplement includes forward-looking statements that are subject
to certain risks and uncertainties which could cause actual results or facts to
differ materially from such statements for a variety of reasons, including, but
not limited to: industry conditions, changes in product supply, pricing, and
customer demand, competition, other vagaries in the electronic components and
commercial computer products markets, and changes in relationships with key
suppliers. Forward-looking statements are those statements which are not
statements of historical fact. You can identify these forward-looking statements
by forward-looking words such as "expects," "anticipates," "intends," "plans,"
"may," "will," "believes," "seeks," "estimates," and similar expressions. You
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date on which they are made. We undertake no
obligation to update publicly or revise any of the forward-looking statements.
S-2
5
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, included or
incorporated by reference in this prospectus supplement. Unless otherwise
specified, all information herein assumes no exercise of the underwriters'
over-allotment option. References to "we," "us," "our," or "Arrow" refer to
Arrow Electronics, Inc. and its subsidiaries, unless the context requires
otherwise or the text indicates otherwise.
ARROW ELECTRONICS, INC.
We are the world's largest distributor of electronic components and
computer products to industrial and commercial customers. We believe we are one
of the global electronics distribution industry's leaders in state-of-the-art
operating systems, employee productivity, value-added programs, and total
quality assurance. Through a network of more than 225 sales facilities and 19
distribution centers in 38 countries, we deliver inventory solutions, materials
management services, and design and technical support our customers need when,
where and how they need them.
We are diversified across suppliers, geographic regions, and customers. We
are a leading distributor for over 600 suppliers. Our distribution network spans
the world's three dominant electronics markets: the Americas, Europe, and the
Asia/Pacific region. Through our business units in these vital industrialized
regions, we serve over 175,000 original equipment manufacturers, or OEMs, and
commercial customers worldwide. OEMs include manufacturers of computer and
office products, industrial equipment (including machine tools, factory
automation, and robotic equipment), telecommunications products, aircraft and
aerospace equipment, and scientific and medical devices. Commercial customers
are mainly value-added resellers of computer systems.
Our strategy is to be the premier supply-chain partner for our customers
and suppliers, assisting them throughout the supply chain--from concept through
production. We believe we can achieve our strategy through:
- Technology-based sales and marketing teams;
- Broad array of value-added services;
- State-of-the-art technology, systems and logistics networks;
- Opportunistic acquisitions; and
- Leadership in e-commerce.
S-3
6
THE OFFERING
Securities Offered......... $ aggregate principal amount at maturity
of zero coupon convertible senior debentures due
February , 2021, plus an additional $
aggregate principal amount at maturity if the
underwriters' over-allotment option is exercised in
full. We will not pay periodic interest on the
debentures, except as described under "Description
of Debentures -- Optional Conversion to Semiannual
Coupon Debentures Upon a Tax Event."
Yield to Maturity of
Debentures............... % per year compounded semi-annually,
calculated from February , 2001.
Conversion................. You have the option to convert the debentures into
our common stock at any time prior to maturity or
their earlier redemption. You can convert the
debentures into common stock at a fixed conversion
rate of shares per $1,000 principal
amount at maturity. The conversion rate will be
subject to adjustment if certain events occur. See
"Description of Debentures -- Conversion of
Debentures by Holders."
You may exercise the option to convert only before
the debentures reach maturity and before we redeem
or repurchase them.
Ranking.................... The debentures will be unsecured and unsubordinated
obligations of our company and are pari passu in
right of payment with all of our existing and
future unsubordinated and unsecured obligations.
Original Issue Discount.... The debentures are being offered at original issue
discount for United States federal income tax
purposes equal to the excess of their principal
amount at maturity over the amount of their issue
price. We will not make periodic cash payments of
interest on the debentures, except as described
under "Description of Debentures -- Optional
Conversion to Semiannual Coupon Debentures Upon a
Tax Event." Nonetheless, you should be aware that
accrued original issue discount will be included
periodically in your gross income for United States
federal income tax purposes. See "Certain United
States Federal Income Tax Considerations."
You should be aware that you will be responsible
for the payment of taxes that may be due even
though you may not receive any cash payment at the
time original issue discount is included in your
gross income.
Redemption at Our Option... We cannot redeem the debentures before February ,
2006. At any time on or after February , 2006, we
can redeem all or part of the debentures for cash.
You can convert the debentures after they are
called for redemption at any time up to three
business days prior to the redemption date.
S-4
7
Redemption prices are equal to the issue price plus
accrued original issue discount through the date of
redemption. See "Description of
Debentures -- Redemption of Debentures at Our
Option."
Fundamental Change......... You may require us to repurchase the debentures if
we experience a Fundamental Change. The Fundamental
Change purchase price is equal to the issue price
plus accrued original issue discount through the
date of repurchase. See "Description of
Debentures -- Repurchase at the Option of the
Holder Upon a Fundamental Change."
Repurchase at the
Option of the Holder..... You may require us to repurchase the debentures on
February , 2006, February , 2011 and February
, 2016 at a repurchase price equal to the issue
price plus accrued original issue discount through
the date of repurchase. We may elect to pay all or
a portion of the repurchase price in common stock
instead of cash, subject to certain conditions. See
"Description of Debentures -- Repurchase of
Debentures at the Option of the Holder."
Conversion to Semiannual
Coupon Debenture......... If a tax event prevents us from deducting original
issue discount payable on the debentures, we can
elect to pay you interest in cash and terminate the
further accrual of original issue discount. See
"Description of Debentures -- Optional Conversion
to Semiannual Coupon Debentures Upon a Tax Event."
Certain Covenants.......... The debentures are subject to a number of
covenants, including restrictions on liens, sale
and leaseback transactions, and mergers,
consolidations, and the sale of substantially all
of our assets, as more fully described in the
prospectus.
Use of Proceeds............ Arrow expects to use the net proceeds of this
offering to repay short-term debt.
NYSE Common Stock
Symbol................... ARW
S-5
8
SUMMARY HISTORICAL FINANCIAL DATA
The following table contains our summary historical financial data as of
the dates and for the periods indicated. We have derived the historical
financial data as of and for each of the years in the five-year period ended
December 31, 1999 from our audited consolidated financial statements. We have
derived the historical financial data as of September 30, 2000 and for the
nine-month periods ended September 30, 2000 and September 30, 1999 from our
unaudited consolidated financial statements which, in the opinion of management,
include all adjustments necessary for a fair presentation. Nine-month results,
however, are not necessarily indicative of the results that may be expected for
any other interim period or for a full year.
You should read the following data together with our other historical
financial information and statements (including related notes) of us
incorporated by reference in this prospectus supplement. Please also read
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Capitalization" included in this prospectus supplement.
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------- ------------------------------------------------
2000 1999(A) 1999(B) 1998 1997(C) 1996 1995
------ ------- ------- ------ ------- ------ ------
(IN MILLIONS EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA
Sales............................................ $9,268 $6,827 $9,313 $8,345 $7,764 $6,535 $5,919
Operating income................................. 537 230 339 353 375 401 423
EBITDA(d)........................................ 598 308 433 405 440 438 459
Interest expense................................. 107 78 106 81 67 38 46
Net income....................................... 249 80 124 146 164 203 203
Diluted earnings per share(e).................... $ 2.53 $ 0.83 $ 1.29 $ 1.50 $ 1.64 $ 1.98 $ 2.03
AT AT DECEMBER 31,
SEPTEMBER 30, ----------------------------------------------
2000 1999 1998 1997 1996 1995
------------- ------ ------ ------ ------ ------
(IN MILLIONS)
BALANCE SHEET DATA
Accounts receivable and inventory................... $4,209 $3,084 $2,676 $2,475 $1,948 $1,979
Total assets........................................ 5,707 4,483 3,840 3,538 2,710 2,701
Total long-term debt and capital lease
obligations....................................... 859 1,533 1,047 830 353 461
Shareholders' equity................................ 1,766 1,551 1,487 1,361 1,358 1,196
------------
(a) Operating and net income include a special charge of $25 million and $16
million after taxes, respectively, associated with the acquisition and
integration of Richey Electronics, Inc. ("Richey") and the electronics
distribution group of Bell Industries, Inc. ("EDG"). Excluding this charge,
operating income, net income, and earnings per share on a diluted basis
would have been $255 million, $97 million, and $1.01, respectively.
(b) Operating and net income include a special charge of $25 million and $16
million after taxes, respectively, associated with the acquisition and
integration of Richey and EDG. Excluding this charge, operating income, net
income, and earnings per share on a diluted basis would have been $363
million, $141 million, and $1.46, respectively.
(c) Operating and net income include special charges totaling $59 million and
$40 million after taxes, respectively, associated with the realignment of
our North American Components Operations and the acquisition and integration
of the volume electronic component distribution businesses of Premier
Farnell plc. Excluding these charges, operating income, net income, and
earnings per share on a diluted basis were $434 million, $204 million, and
$2.05, respectively.
(d) EBITDA consists of the sum of net income, interest expense, income taxes,
minority interest, and depreciation and amortization, exclusive of the
special charges related to acquisitions. We present EBITDA because investors
use EBITDA to determine our ability to meet our debt service obligations,
fund capital expenditures, and expand our business. You should not consider
this information to be an alternative to net income, operating income, cash
flow from operations or any other operating or liquidity performance measure
prescribed by generally accepted accounting principles (GAAP). Our
presentation of EBITDA may not be comparable to EBITDA defined and presented
by other companies.
(e) Per share amounts in 1996 and 1995 have been restated to reflect a
two-for-one stock split effective October 15, 1997.
S-6
9
USE OF PROCEEDS
Arrow expects to use the net proceeds of this offering to repay short-term
debt.
COMMON STOCK PRICE RANGE
Arrow's common stock is listed on the New York Stock Exchange under the
symbol "ARW." The following table lists the high and low per share sales prices
for the common stock as reported by the New York Stock Exchange for the periods
indicated:
HIGH LOW
------- -------
YEAR ENDED DECEMBER 31, 1999:
First quarter............................................. $26 9/16 $13 3/16
Second quarter............................................ 19 7/8 14 5/8
Third quarter............................................. 23 1/8 16 15/16
Fourth quarter............................................ 26 1/2 14 3/4
YEAR ENDED DECEMBER 31, 2000:
First quarter............................................. 37 1/2 20 1/2
Second quarter............................................ 46 28 1/4
Third quarter............................................. 39 7/8 31 3/8
Fourth quarter............................................ 37 3/16 22 1/16
YEAR ENDED DECEMBER 31, 2001:
First quarter (through February 12, 2001)................. 33 7/16 26 3/16
On February 12, 2001, the reported last sale price of the common stock as
reported by the New York Stock Exchange was $28.91 per share.
DIVIDEND POLICY
We have not paid cash dividends on our common stock during the past five
years. While the board of directors considers the payment of dividends on the
common stock from time to time, the declaration of future dividends will be
dependent upon our earnings, financial condition, and other relevant factors.
The terms of our credit facilities, senior notes, and senior debentures
limit, among other things, the incurrence of additional borrowings and require
that working capital, net worth, and certain other financial ratios be
maintained at designated levels.
S-7
10
CAPITALIZATION
The following table sets forth our capitalization on an actual basis as of
September 30, 2000 and as adjusted on a pro forma basis to give effect to the
issuance of the floating rate notes due 2001, the 8.20% senior notes due 2003,
the 8.70% senior notes due 2005 and the 9.15% senior notes due 2010, issued on
October 6, 2000, the issuance of the debentures, and the application of the net
proceeds thereof in accordance with "Use of Proceeds."
In December 2000, we entered into a $400 million short-term credit facility
scheduled to mature on March 19, 2001. If certain conditions are met, the
facility maturity date may be extended to June 19, 2001. We used the proceeds of
this facility to repay various short-term debt. We intend to repay the
outstanding indebtedness of $400 million under this facility with a portion of
the proceeds of this offering.
In December 2000, Standard & Poor's announced that it had placed our
long-term ratings on CreditWatch with negative implications. It also affirmed
our A-2 commercial paper rating. Standard and Poor's stated that it would lower
our long-term credit rating from its current BBB+ to BBB with a stable outlook
on April 2, 2001, if we have not completed a significant equity offering by that
date. In connection with this offering we have agreed not to engage in an
offering of common stock or securities convertible into or exchangeable for
common stock for a period of 90 days following the closing of this offering. See
"Underwriters."
AT
SEPTEMBER 30, 2000
---------------------
ACTUAL AS ADJUSTED
------ -----------
(IN MILLIONS)
Short-term debt:
Various borrowings, including current maturities of
long-term debt......................................... $ 374 $ 374
Floating rate notes due 2001.............................. -- 200
Credit facilities......................................... 389 389
Commercial paper program.................................. 405 215
Bid facilities............................................ 297 --
------ ------
$1,465 $1,178
====== ======
Long-term debt:
6.45% senior notes due 2003............................... 250 250
7% senior notes due 2007.................................. 198 198
6 7/8% senior debentures due 2018......................... 196 196
7 1/2% senior debentures due 2027......................... 196 196
8.20% senior notes due 2003............................... -- 425
8.70% senior notes due 2005............................... -- 250
9.15% senior notes due 2010............................... -- 200
Zero coupon convertible senior debentures due 2021........ -- 487
Other obligations with various interest rates and due
dates.................................................. 19 19
------ ------
Total long-term debt.............................. 859 2,221
------ ------
Total debt........................................ $2,324 $3,399
====== ======
Shareholders' equity:
Common stock, par value $1: Authorized--160,000,000 shares
Issued--103,741,595 shares............................. 104 104
Capital in excess of par value............................ 528 528
Retained earnings......................................... 1,488 1,488
Foreign currency translation adjustment................... (196) (196)
------ ------
1,924 1,924
Less:
Treasury shares (5,552,692), at cost...................... 149 149
Unamortized employee stock awards......................... 9 9
------ ------
Total shareholders' equity........................ 1,766 1,766
------ ------
Total capitalization.............................. $4,090 $5,165
====== ======
S-8
11
SELECTED HISTORICAL FINANCIAL DATA
The following table contains our selected historical financial data as of
the dates and for the periods indicated. We have derived the historical
financial data as of and for each of the years in the five-year period ended
December 31, 1999 from our audited consolidated financial statements. We have
derived the historical financial data as of September 30, 2000 and for the
nine-month periods ended September 30, 2000 and September 30, 1999 from our
unaudited consolidated financial statements which, in the opinion of management,
include all adjustments necessary for a fair presentation. Nine-month results,
however, are not necessarily indicative of the results that may be expected for
any other interim period or for a full year.
You should read the following data together with our other historical
financial information and statements (including related notes) of us
incorporated by reference in this prospectus supplement. Please also read
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Capitalization" included in this prospectus supplement.
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------- ------------------------------------------------
2000 1999(A) 1999(B) 1998 1997(C) 1996 1995
------ ------- ------- ------ ------- ------ ------
(IN MILLIONS EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA
Sales......................................... $9,268 $6,827 $9,313 $8,345 $7,764 $6,535 $5,919
Operating income.............................. 537 230 339 353 375 401 423
EBITDA(d)..................................... 598 308 433 405 440 438 459
Interest expense.............................. 107 78 106 81 67 38 46
Net income.................................... 249 80 124 146 164 203 203
Diluted earnings per share(e)................. $ 2.53 $ 0.83 $ 1.29 $ 1.50 $ 1.64 $ 1.98 $ 2.03
AT AT DECEMBER 31,
SEPTEMBER 30, ----------------------------------------------
2000 1999 1998 1997 1996 1995
------------- ------ ------ ------ ------ ------
(IN MILLIONS)
BALANCE SHEET DATA
Accounts receivable and inventory.................... $4,209 $3,084 $2,676 $2,475 $1,948 $1,979
Total assets......................................... 5,707 4,483 3,840 3,538 2,710 2,701
Total long-term debt and capital lease obligations... 859 1,533 1,047 830 353 461
Shareholders' equity................................. 1,766 1,551 1,487 1,361 1,358 1,196
------------
(a) Operating and net income include a special charge of $25 million and $16
million after taxes, respectively, associated with the acquisition and
integration of Richey Electronics, Inc. ("Richey") and the electronics
distribution group of Bell Industries, Inc. ("EDG"). Excluding this charge,
operating income, net income, and earnings per share on a diluted basis
would have been $255 million, $97 million, and $1.01, respectively.
(b) Operating and net income include a special charge of $25 million and $16
million after taxes, respectively, associated with the acquisition and
integration of Richey and EDG. Excluding this charge, operating income, net
income, and earnings per share on a diluted basis would have been $363
million, $141 million, and $1.46, respectively.
(c) Operating and net income include special charges totaling $59 million and
$40 million after taxes, respectively, associated with the realignment of
our North American Components Operations and the acquisition and integration
of the volume electronic component distribution businesses of Premier
Farnell plc. Excluding these charges, operating income, net income, and
earnings per share on a diluted basis were $434 million, $204 million, and
$2.05, respectively.
(d) EBITDA consists of the sum of net income, interest expense, income taxes,
minority interest, and depreciation and amortization, exclusive of the
special charges related to acquisitions. We present EBITDA because investors
use EBITDA to determine our ability to meet our debt service obligations,
fund capital expenditures, and expand our business. You should not consider
this information to be an alternative to net income, operating income, cash
flow from operations or any other operating or liquidity performance measure
prescribed by generally accepted accounting principles (GAAP). Our
presentation of EBITDA may not be comparable to EBITDA defined and presented
by other companies.
(e) Per share amounts in 1996 and 1995 have been restated to reflect a
two-for-one stock split effective October 15, 1997.
S-9
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For an understanding of the significant factors that influenced our
performance during the periods described below, the following discussion should
be read in conjunction with our consolidated financial statements and other
information included in or incorporated by reference in this prospectus
supplement.
NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
SALES
Consolidated sales for the first nine months of 2000 increased 36 percent
compared with the comparable prior-year period. The sales growth was driven by a
59 percent increase in sales of core components (net of foreign exchange rate
differences) for the first nine months of 2000, from the comparable prior-year
period. Sales of computer products decreased by 7 percent for the first nine
months of 2000, when compared to the year-earlier period principally as a result
of market conditions for mid-range products and lower sales of low margin
microprocessors (a product segment not considered a part of the company's core
business).
OPERATING INCOME
We recorded operating income of $537.4 million in the first nine months of
2000, compared with $230.2 million in the comparable prior-year period.
Excluding the integration charge relating to EDG and Richey, operating income
was $254.8 million for the nine months ended September 30, 1999. The increase in
operating income is due to increased sales and improving gross profit margins in
the core components businesses around the world, as well as a change in mix
resulting in greater weighting of the core components business. In addition,
operating expenses as a percentage of sales decreased to 9.8 percent for the
nine months ended September 30, 2000, from 10.1 percent in the comparable
prior-year period.
INTEREST EXPENSE
Interest expense of $107.2 million in the first nine months of 2000
increased from $78.1 million in the comparable prior-year period. The increase
is the result of additional debt incurred to fund acquisitions, internet-related
joint ventures, and capital expenditures, and investments in working capital to
support accelerated sales growth.
INCOME TAXES
We recorded a provision for taxes at an effective rate of 41 percent for
the first nine months of 2000, compared with 44.4 percent in the comparable
prior-year period. Excluding the impact of the integration charge referred to
above, the effective rate was 42.8 percent for the nine months ended September
30, 1999. Our effective tax rate is principally impacted by, among other
factors, the statutory tax rates in the countries in which we operate, the
related level of earnings generated by these operations, and the
nondeductibility of goodwill amortization.
NET INCOME
We recorded net income of $249 million in the first nine months of 2000,
compared with $80.1 million in the comparable prior-year period. Excluding the
integration charge of $24.6 million ($16.5 million after taxes), net income was
$96.6 million for the first nine months of 1999. The increase in net income is
due to increased sales and improving gross profit margins, offset, in part, by
higher levels of interest.
YEARS ENDED DECEMBER 31, 1999 AND 1998
SALES
In 1999, consolidated sales increased to $9.3 billion. This 12 percent
sales growth over 1998 was principally due to growth in the worldwide core
components operations and acquisitions offset, in part, by
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fewer sales of low margin microprocessors, a product segment not considered a
part of the company's core business, and foreign exchange rate differences.
Excluding the impact of the Richey and EDG acquisitions, foreign exchange rate
differences, and lower microprocessor sales, consolidated revenue increased by 8
percent over the prior year and sales of core components increased by 10
percent. Sales of commercial computer products increased marginally over 1998's
level due principally to softening demand and lower average selling prices,
offset by increasing unit shipments, as a result of market conditions.
Consolidated sales of $8.3 billion in 1998 were 7 percent higher than 1997
sales of $7.8 billion. This sales growth was due to increased sales of
commercial computer products from $1.3 billion in 1997 to more than $2 billion
in 1998. Excluding the impact of acquisitions, 1998 sales of computer products
increased by 24 percent when compared to 1997. The worldwide market for
electronic components continued to be characterized by product availability well
in excess of demand and resultant pressure on average selling prices and gross
profit margins resulting in a decline in sales from $6.5 billion in 1997 to $6.3
billion in 1998.
OPERATING INCOME
In 1999, our consolidated operating income decreased to $338.7 million from
$352.5 million in 1998, principally as result of the special charge of $24.6
million associated with the acquisition and integration of Richey and EDG.
Excluding this integration charge, operating income was $363.2 million.
Operating income, excluding the integration charge, increased as a result of
higher sales, improving gross profit margins in the core components operations
in the latter part of 1999, and improved operating efficiencies resulting from
the integration of Richey and EDG into our North American Components Operations
("NACO") offset, in part, by lower gross profit margins in the computer products
operations, increased non-cash amortization expense associated with goodwill,
investments made in systems, including the Internet, and personnel to support
anticipated increases in business activities in 2000 and beyond.
Our consolidated operating income decreased to $352.5 million in 1998,
compared with operating income of $374.7 million in 1997, including special
charges of $59.5 million. Excluding the special charges, operating income in
1997 was $434.2 million. The reduction in operating income reflected a decline
in the sales of our NACO, a further decline in gross margins due to
proportionately higher sales of lower margin commercial computer products, and
competitive pricing pressures throughout the world offset, in part, by the
impact of increased sales and the benefits of continuing economies of scale.
Operating expenses as a percent of sales remained consistent with 1997 at 9.7
percent, the lowest in our history.
INTEREST EXPENSE
In 1999, interest expense increased to $106.3 million from $81.1 million in
1998, reflecting both increases in borrowings to fund acquisitions and
investments in working capital.
Interest expense of $81.1 million in 1998 increased by $14 million from the
1997 level, reflecting increases in borrowings associated with acquisitions and
investments in working capital.
INCOME TAXES
In 1999, we recorded a provision for taxes at an effective tax rate of 43
percent, excluding the integration charge, compared with 42.2 percent in 1998.
The increased rate of 1999 is due to the non-deductibility of goodwill
amortization.
We recorded a provision for taxes at an effective tax rate of 42.2 percent
in 1998 compared with 41 percent, excluding the special charges, in 1997. The
higher effective rate in 1998 is due to the non-deductibility of goodwill
amortization.
NET INCOME
In 1999, our net income decreased to $124.2 million from $145.8 million in
1998. Excluding the integration charge, net income was $140.6 million. The
decrease in net income, excluding the integration
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charge, was primarily attributable to an increase in operating income and a
decrease in minority interest offset by an increase in interest expense.
Net income in 1998 was $145.8 million, a decrease from $204.1 million,
before the special charges of $59.5 million ($40.4 million after taxes), in
1997. The decrease in net income is attributable to lower operating income and
increases in interest expense.
LIQUIDITY AND CAPITAL RESOURCES
We maintain a high level of current assets, primarily accounts receivable
and inventories. Consolidated current assets as a percentage of total assets
were approximately 75 percent at September 30, 2000, compared with 70 percent at
September 30, 1999.
The net amount of cash used for our operating activities during the first
nine months of 2000 was $373 million, principally reflecting investments in
working capital, offset, in part, by earnings for the nine months. The net
amount of cash used for investing activities was $177.6 million, including $51
million for various capital expenditures, $92.7 million primarily for the
acquisitions of Rapac Electronics Ltd., Tekelec Europe, Jakob Hatteland AS, and
Dicopel S.A. de C.V., and $33.9 million for internet-related joint ventures. The
net amount of cash provided by financing was $554.6 million, primarily
reflecting borrowings under the company's commercial paper program, credit
facilities, and various short-term bank borrowings.
The net amount of cash provided by our operating activities during the
first nine months of 1999 was $66.6 million, principally reflecting earnings,
offset, in part, by investments in working capital. The net amount of cash used
for investing activities was $523.6 million, including $62.7 million for various
capital expenditures and $460.9 million principally for the acquisitions of
Richey, EDG, the remaining 10% of Spoerle Electronic, the remaining interest in
Support Net, Inc., and the additional interest in Scientific and Business
Minicomputers, Inc., as well as certain internet-related investments. The net
amount of cash provided by financing activities was $356.8 million, reflecting
borrowings under the company's credit facilities, offset, in part, by the
repayment of Richey's 7.0% convertible subordinated notes and debentures and
distributions to partners.
In December 2000, we entered into a $400 million short-term credit facility
scheduled to mature on March 19, 2001. If certain conditions are met, the
facility maturity date may be extended to June 19, 2001, at our option. We used
the proceeds of this facility to repay various short-term debt. We intend to
repay the outstanding indebtedness of $400 million under this facility with a
portion of the proceeds of this offering. See "Use of Proceeds."
We are currently in negotiations with a number of financial institutions to
refinance our $550 million 364-day credit facility scheduled to mature in March
2001 and our $650 million global multi-currency credit facility scheduled to
mature in September 2001 with a new 364-day credit facility and a new multi-year
credit facility. We anticipate that these transactions will close during the
first quarter of 2001.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in foreign currency exchange
rates and interest rates.
As a large international organization, we are exposed to adverse movements
in foreign currency exchange rates. These exposures may change over time as
business practices evolve and could have a material impact on our financial
results in the future. Our primary exposure relates to transactions in which the
currency collected from customers is different from the currency utilized to
purchase the product sold in Europe, the Asia/Pacific region, and Latin America.
At the present time, we hedge only those currency exposures for which natural
hedges do not exist. Anticipated foreign currency cash flows and earnings and
investments in businesses in Europe, the Asia/Pacific region, and Latin America
are not hedged as in many instances there are natural offsetting positions. The
translation of the financial statements of the non-North American operations is
impacted by fluctuations in foreign currency exchange rates. Had the various
average foreign currency exchange rates remained the same during the first nine
months of 2000 as compared with December 31, 1999,
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2000 sales and operating income would have been $284 million and $27 million
higher, respectively, than the reported results.
Our interest expense, in part, is sensitive to the general level of
interest rates in the Americas, Europe, and the Asia/Pacific region. We manage
our exposure to interest rate risk through the proportion of fixed rate and
variable rate debt in its total debt portfolio. At September 30, 2000, we had
approximately 37 percent of our debt as fixed rate borrowings and 63 percent of
our debt subject to variable rates. Interest expense would fluctuate by
approximately $7 million if average interest rates had changed by one percentage
point during the first nine months of 2000. This amount was determined by
considering the impact of a hypothetical interest rate on our borrowing cost.
This analysis does not consider the effect of the level of overall economic
activity that could exist in such an environment. Further, in the event of a
change of such magnitude, management could likely take actions to further
mitigate any potential negative exposure to the change. However, due to the
uncertainty of the specific actions that would be taken and their possible
effects, the sensitivity analysis assumes no changes in our financial structure.
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BUSINESS
BUSINESS OVERVIEW
We are the world's largest distributor of electronic components and
computer products to industrial and commercial customers. Spanning the world's
three major electronics markets--the Americas, Europe, and the Asia/Pacific
region--we offer an extensive global distribution network.
We have one of the industry's broadest product offerings, or line cards,
providing real-time access to a $1.9 billion inventory as of September 30, 2000
from more than 600 leading manufacturers. Through a network of more than 225
sales facilities and 19 distribution centers in 38 countries we deliver to more
than 175,000 original equipment manufacturers and commercial customers the
products, inventory solutions, materials management services, design, and
technical support they need when, where and how they need them. We are the
largest distributor for many of the world's leading semiconductor suppliers and
one of the leading passive, electromechanical, and interconnect ("PEMCO")
distribution resources in the industry.
In 1999, revenues exceeded $9.3 billion with EBITDA and net income of $433
million and $141 million, respectively, excluding the special charge of $24.6
million ($16.5 million after taxes) associated with the integration of
acquisitions. For the first nine months of 2000, revenues totaled approximately
$9.3 billion with EBITDA and net income of $598 million and $249 million,
respectively. In each of the first three quarters of 2000, sales, EBITDA, and
net income were at record levels.
Because we have a diverse mix of products and customers and a broad
geographic reach, we do not rely upon any one supplier or type of product, and
have limited exposure to technological change in the products we offer as well
as limited risks related to our customers' business cycles and regional economic
cycles.
We have transitioned our business from its historical role of simple order
fulfillment to an integral part of the supply chain. Suppliers rely on us to
possess significant "demand creation" skills, on a global basis, and to serve as
an integral resource to their own selling efforts.
We also serve as a critical link in the management of our customers' own
supply chain. Through our wide range of value-added services, we help our
customers select the right technology and design and the most appropriate
components, reduce time-to-market, lower costs, and enhance overall
competitiveness. As manufacturing has moved to a just-in-time (JIT) basis, our
expertise in supply-chain management enables us to deliver parts to our
customers as needed. Contributing to this important role is our ability to
profile our customers' product requirements--taking into consideration changing
demand patterns and market fluctuations. Because of the breadth of our line card
we can offer customers one-stop shopping, helping them to minimize their own
costs. Over 64% of our North American revenues are derived from customers to
whom we provide value-added services, reflecting our key role in the supply
chain for suppliers and customers alike.
The value-added services we offer include:
MANUFACTURING SERVICES MATERIALS MANAGEMENT PRODUCT ENHANCEMENT SERVICES
---------------------- -------------------------------- --------------------------------
Box Building Bill of Materials (BOM) Grading Bar Coding
Component Programming Bonded Inventory Management Packaging
Connector and Cable Assembly CARES (Auto Replenishment) Serialization
Flat Panel Assembly Hardware E-compass (Forecast and Order Special Handling Procedures
Configuration Management) Special Marking Tape and
Kitting In-plant Stores Reel Testing
Systems Integration Inventory Management Software Integration
JIT Inventory
Primary and Proximity
Warehousing
Product Life Cycle Management
Product Traceability
Schedule Sharing
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TECHNICAL SUPPORT ELECTRONIC COMMERCE FINANCIAL SERVICES
----------------- ------------------- ------------------
Design-in Engineering Support EDI Consolidating
Field Application Engineers Internet Ordering Invoicing
Marketing Support PRO-Series Specialized Financing
Product Education and In-plant Terminals
Certification
Technical Seminars
Technical Support
Technical Training
INDUSTRY OVERVIEW
Our industry has undergone a significant transformation. Leading
distributors must be more than stocking and marketing intermediaries. Their
ability to fill a range of roles is paramount. Technical proficiency and demand
creation, broad product offerings, innovative value-added programs, and a global
presence contribute to the success of our suppliers and customers alike.
Our industry has had strong long-term growth, yet is still subject to
business cycles. Over the past 30 years our industry has grown at a 12% compound
annual growth rate. Despite this growth, there are, periodically, industry-wide
troughs driven principally by product supply and availability.
Our financial performance through these cycles has changed significantly.
During the down cycle of the mid 1980s, we suffered losses, while during the
recessionary period of the early 1990s, we were marginally profitable. During
the period from mid 1996 through 1999, the industry's longest and most severe
recessionary cycle in the past three decades, our annual net income was never
below $140 million, excluding non-recurring charges. We believe that if we are
able to continue to successfully leverage our operating structure and cost
efficiencies, we can position ourselves to not only reap the benefits of growth
in our industry, but also better withstand the recessionary cycles.
Our industry requires modest capital investments in "bricks and mortar."
Instead, our cash requirements are most often tied to highly-liquid assets like
receivables and inventory.
Our industry's exposure to inventory risks is limited. It is the policy of
most manufacturers to protect authorized distributors, like ourselves, against
the potential write-down of semiconductor inventories due to technological
change or manufacturers' price reductions. Under the terms of the related
distributor agreements, and assuming the distributor complies with certain
conditions, those suppliers are required to credit the distributor for inventory
losses incurred through reductions in manufacturers' list prices. In addition,
under the terms of many distributor agreements, the distributor has the right to
return to the manufacturer for credit a defined portion of those inventory items
purchased within a designated period of time. Approximately 65 percent of the
dollar value of our inventory consists of semiconductors.
A manufacturer who elects to terminate a distributor agreement is generally
required to purchase from the distributor the total amount of its products
carried in inventory. While these industry practices do not entirely protect us
from inventory losses, we believe that they currently provide substantial
protection from those losses.
STRATEGY
Our strategy is to be the premier supply-chain partner for our customers
and suppliers, assisting them throughout the supply chain--from concept through
production. We believe we can achieve our strategy through:
TECHNOLOGY-BASED SALES AND MARKETING TEAMS
We seek to ensure that our sales force and engineers stay abreast of the
latest technological developments. Our field application engineers are trained
to understand the needs of our customers and to translate that information back
to our suppliers. By understanding the state-of-the-art products of our
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suppliers, and the full potential of their application, our team will be able to
provide maximum benefit to both our customers and our suppliers.
BROAD ARRAY OF VALUE-ADDED SERVICES
We strive to provide our customers with the broadest array of the
value-added services they want in order to service their needs throughout the
supply chain. These value-added services, including both physical and materials
management, position us as a true partner to our customers. From kitting, to
programming of parts, to procurement and materials management programs, to
credit extension, we seek to strengthen the reliance our customers place in us.
STATE-OF-THE-ART TECHNOLOGY, SYSTEMS AND LOGISTICS NETWORKS
We continuously invest in the technology, the systems, and the logistics
network needed to make our distribution operations more efficient. Then, we rely
on this efficient network to generate economies of scale from increased business
activity, which results in decreased operating costs as a percentage of our
revenues.
OPPORTUNISTIC ACQUISITIONS
Our opportunistic acquisitions over the past 20 years have helped enable us
to become the largest electronic components distributor in the world and to
become a truly global distributor. They have also helped us to improve our
operating efficiencies by giving us the additional business activity from which
economies of scale are derived. We will continue to expand our reach, striving
for a presence that serves the needs of our customers and suppliers around the
globe.
LEADERSHIP IN E-COMMERCE
Our investments in the Internet, both directly through our internal efforts
and externally through the joint ventures in which we participate, will enable
our customers, suppliers, and shareholders to participate in the benefits to be
derived from this emerging technology.
OVERVIEW BY REGION
Our business has a significant presence in each of the world's three major
markets. Our 1999 sales of $9.3 billion were generated as follows: 66% from the
Americas, 26% from Europe, and 8% from the Asia/ Pacific region.
NORTH AMERICA
In North America, we are a leader in electronics distribution. Our
operations are organized around two distinct operating groups, NACO and North
American Computer Products ("NACP") groups:
NACO offers a wide range of electronic components--principally
semiconductors and PEMCO products (i.e., capacitors, resistors, potentiometers,
power supplies, relays, switches, and connectors)--representing the industry's
broadest line card. Sales totaled $3.6 billion and $3.9 billion in 1999 and for
the first nine months of 2000, respectively, for this group.
NACO consists of eight segmented marketing groups specifically positioned
to provide business solutions tailored to match customer needs. These marketing
groups are:
- Arrow Contract Manufacturing Services Distribution Group focuses
exclusively on providing industry expertise, extensive technical
resources, and value-added services to contract manufacturers.
- Arrow/Richey Electronics is one of the world's largest distributors of
PEMCO products, and provides customers with comprehensive, innovative
value-added services.
- Arrow/Bell Components specializes in servicing the needs of small,
medium, and emerging industrial OEMs in North America offering a complete
line of semiconductor, PEMCO, and industrial computer
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products, as well as cable, mechanical, and assembly value-added
services. Arrow/Bell's field application engineers provide dedicated
semiconductor engineering support, design tools, and a broad technology
base to assist customers throughout the product development and design
cycle.
- Arrow Semiconductor Group specializes in serving the semiconductor needs
of the larger OEMs, interfacing with customers' engineers and product
development teams to help select the right components that will minimize
a product's time-to-market.
- Arrow/Wyle Communications Group specializes in serving the semiconductor
needs of communications and networking original equipment manufacturers,
regardless of size.
- Arrow/Zeus Electronics maintains support from design through production
to the military, aerospace and other electronics industries offering
high-reliability semiconductors and space products, commercial
semiconductors, and industrial computer products, with military and
aerospace inventories geared to meet crucial deadlines.
- Arrow Alliance Group provides a full line card and a wide range of
value-added services to large customers with complex needs.
- Arrow Supplier Services Group manages all semiconductor supplier
relationships, including the line card strategy, marketing programs and
purchasing.
NACP is a full-line technical distributor of computer systems, peripherals,
and software to value-added resellers ("VARs") and industrial computer products,
with an emphasis on being a leading distributor of mid-range work stations.
Sales of this group totaled $2.6 billion and $1.8 billion in 1999 and for the
first nine months of 2000, respectively.
NACP consists of six segmented marketing groups as follows:
- SBM is a leading distributor of Hewlett-Packard mid-range work stations
operating on UNIX and NT platforms, offering sales, marketing, and
technical support to its VARs.
- SupportNet is a leading distributor of IBM mid-range work stations
offering sales, marketing, and technical support to its VARs.
- MOCA is a leading distributor of Sun Microsystems products, selling
enterprise software, storage area networks, and Solaris operating systems
which run on Sun Microsystems hardware and related professional services.
- Arrow/Wyle Computer Products Group is a distributor offering technical
solutions to OEM's, Compaq resellers and large complex customers who
require computer products. Extensive product offerings include computer
systems and servers, networking, peripherals, and an array of mass
storage products, from disk drives to RAID systems.
- Arrow Microtronica provides component and board level computer products
to PC, server and storage subsystem builders and integrators representing
the world's preeminent suppliers of CPUs, mass storage, memory,
motherboards, and all other components and peripherals required to build
a computer system.
- Gates/Arrow is a full-line technical distributor of computer systems,
peripherals, and software to VARs, offering a full range of computing
platforms, from desktop systems to enterprise computing environments and
technical assistance for most operating systems including UNIX, Netware,
DOS, Windows, Windows NT, as well as Intel and RISC-based platforms.
Arrow also serves the rapidly-developing markets in Argentina, Brazil, and
Mexico through its recent majority investments in Elko, Panamericana, and
Dicopel, respectively, leading electronic components distributors in each of
these countries.
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EUROPE
Our position in Europe has grown significantly since our initial entry into
this market in 1985 with revenues totaling $2.4 billion in 1999, representing
26% of our worldwide total, and $2.6 billion for the first nine months of 2000.
We are a recognized leader of pan-European components distribution. We have
secured this position by recognizing that Europe is made up of unique sectors
requiring different products and services, in effect cultivating a base of local
knowledge supported by a global presence. Our product offering in Europe is more
heavily weighted toward semiconductors, PEMCO products, and industrial computer
products. We are organized into the following geographic regions to service the
unique needs of our customers:
- Northern Europe serves the U.K., Denmark, Finland, Ireland, Norway, and
Sweden. Our joint venture in South Africa, Arrow-Altech, is also a part
of this group.
- Central Europe serves Germany, Austria, Belgium, the Netherlands,
Switzerland, Poland, and the Czech Republic.
- Southern Europe services Italy, France, Spain, Portugal, Israel, Greece,
Hungary, Turkey, and Slovenia.
ASIA/PACIFIC
We are one of the largest distributors in this rapidly-growing region.
Since our initial investment in this region in 1993, revenues have grown to more
than $750 million in 1999 and we expect to exceed $1.3 billion in revenues in
2000. Our product offerings in the Asia/Pacific region largely consist of
semiconductors, PEMCO, and industrial computer products. Headquartered in Hong
Kong, we have offices in Australia, China, India, Malaysia, New Zealand,
Singapore, South Korea, Taiwan, and Thailand. These areas are serviced by our
regional distribution centers in Hong Kong, Malaysia, Taiwan, and Singapore.
Our presence in the region has been strengthened by our joint venture with
the Marubun Corporation, a leading independent components distributor in Japan.
The joint venture sells electronic components to Japanese-owned customers in the
Asia/Pacific region and the Americas.
INTERNET
Because of our critical position in the supply chain and the increasing
demand for value-added services, we believe that the Internet provides us with a
valuable tool to better serve our suppliers' and customers' needs.
We have utilized a two-prong approach to the Internet. Internally, we have
a formalized organization, the Internet Business Group, that focuses on our
corporate e-commerce activities and brings us to the Internet with a set of
tools and services that makes it as easy for customers to do business with us
over the Internet as by traditional means. In 1999, we launched an extensive
suite of on-line, supply-chain management tools, arrow.com PRO-Series. The
result of extensive research and testing, PRO-Series gives customers
Internet-based, 24-hour access to our inventory, plus the ability to place,
modify, monitor, and manage every order on-line. We believe PRO-Series is the
only on-line, supply-chain management tool that provides:
- Real-time multi-line quotes;
- Customer-specific pricing;
- Spot and scheduled ordering on account;
- Ability to change quantity, change data, cancel orders;
- Return authorization; and
- Real-time integration with our sales team.
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The second prong in our approach to the Internet has been to make strategic
investments in select Internet start-up companies to access certain market
segments that we do not currently reach. To date, we have made six such
investments, including investments in companies targeted at Internet buyers and
sellers of excess components, companies providing technical design resources for
engineers for utilization in prototype development, and companies providing
supply-chain management tools.
ACQUISITIONS
The electronics distribution market has undergone a period of
consolidation. In 1970, we were ranked number eleven in our industry based upon
annual revenues. Today, to a large extent resulting from our acquisition
strategy, we are ranked number one. Since 1985, we have made more than 50
acquisitions and strategic investments. We believe we were the first distributor
to develop and execute a strategy to build a pan-European distribution network
and the first North American distributor to enter the Asia/Pacific region,
building one of the largest regional distribution networks. Our approach is to
acquire companies that are recognized leaders in their respective markets, share
our operating philosophies and values, and possess strong, accomplished
managers.
Our acquisitions over the past 15 years have provided us with access to
experienced sales and marketing teams, new supplier relationships, strong
entrepreneurial managers, facilities and value-added centers, technical
expertise, new customer markets, geographic reach, and the ability to gain
greater operating leverage.
Although one of the key challenges in any acquisition is the integration of
the acquired organization, we believe that one of the key attributes of our
organization is our ability to integrate all of our North American acquisitions,
and many of our international acquisitions, into our operating systems with a
minimal amount of disruption to either business. A successful integration
creates significant synergies, which lower our fixed costs as a percentage of
revenues. The synergies are principally from areas such as systems, facilities,
logistics centers, and related personnel, as well as personnel in finance, human
resources, and operations. For example, in January 1999, we acquired both Richey
Electronics, Inc. and the electronics distribution business of Bell Industries,
Inc. and by late 1999 we had identified and eliminated significant duplicative
annual costs. The sales and marketing forces, however, are generally not
rationalized. Instead, we utilize these larger teams to gain greater penetration
in the market.
THE WYLE ACQUISITION
In early August 2000, a consortium consisting of ourselves, an affiliate of
Schroder Ventures, and another distributor, agreed to purchase the VEBA
Electronics Group from Germany-based E.ON AG (formerly VEBA AG) for
approximately $2.35 billion in cash, including the assumption of debt. The VEBA
Electronics Group reported 1999 sales of $5.5 billion. On October 16, 2000, we
completed the acquisition of E.ON's U.S.-based operations: Wyle Components, Wyle
Systems, and the U.S.-based portion of E.ON's logistics unit, ATLAS. Together,
these entities reported combined 1999 sales in North America of about $2
billion.
The Wyle businesses complement our existing distribution businesses in
North America. Wyle brings a focused group of technical specialists to the
market who will now be better positioned to deliver to its customers our broader
and richer array of value-added services. We are fully committed to the
integration of the best practices and people of the Wyle operations.
Additionally, several new suppliers will be added to our line card. As has been
the case with prior acquisitions, we expect the acquisition of the Wyle
Companies to produce sizable synergies.
Wyle Components is a franchised distributor for both broadline and
proprietary semiconductor suppliers in North America. Wyle Components serves
customers in various markets, including networking and communications,
computing, contract manufacturing, instrumentation, transportation, and
industrial controls. The merger of Wyle Components with our North American
Components Operations effectively combines our superior supply-chain management
tools and broad line card with Wyle's strong demand creation capabilities. Wyle
Components had revenues of almost $1.3 billion in 1999 and $1.4 billion for the
first nine months of 2000.
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Wyle Systems is a distributor of computer products with a strong market
presence in the western United States. Our merger with Wyle Systems nearly
doubles our OEM systems sales and systems configuration business, expands our
line card, and strengthens our relationships with suppliers. Wyle Systems had
revenues of $642 million in 1999 and $513 million for the first nine months of
2000.
Wyle Systems has three business units: the OEM Systems Division, the
Technical Solutions Division, and the Commercial Systems Division.
The OEM Systems Division (OSD) provides three types of outsourcing services
to OEMs: (1) manufacturing services, such as systems integration--integrating a
combination of off-the-shelf products, such as boards, memory and
microprocessors, and unique or custom products into end products for OEM
customers, (2) engineering support, and (3) logistic and supply chain
management, including drop-ship management, on- and off-site consignment
management, export control and compliance management, and traffic management.
The Technical Solutions Division (TSD) provides services similar to those
of the OEM Systems Division. However, while the OSD serves OEMs, the TSD's
customers are application VARs, systems integrators, and end users, with greater
concentration on engineering support and less on manufacturing services.
TSD also provides three types of outsourcing services to VARs and end
users: integration services, systems engineering support, and just-in-time
delivery.
The Commercial Systems Division (CSD) services systems and PC integrators
by acting as a volume distributor of commodity products, such as Quantum low-end
storage products. The Commercial Systems Division targets the top 100 PC and
systems integrators in the United States with an outside sales force and also
concentrates on Intel product dealers with an internal group.
THE MOCA ACQUISITION
On October 31, 2000, we acquired MOCA for an initial purchase price of $115
million in cash plus the assumption or repayment of approximately $57 million of
off-balance sheet financing. The acquisition agreement provides that the
purchase price may be increased by up to an additional $37.5 million based upon
future developments with respect to MOCA's business. MOCA is a distributor of
Sun Microsystems products, selling enterprise software, storage area networks,
and Solaris operating systems which run on Sun Microsystems hardware and related
professional services.
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MANAGEMENT
NAME AGE POSITION
---- --- --------
Stephen Kaufman........................... 59 Chairman
Francis M. Scricco........................ 51 President and Chief Executive Officer
Robert E. Klatell......................... 55 Executive Vice President, General Counsel and
Secretary
Sam R. Leno............................... 55 Senior Vice President and Chief Financial
Officer
Betty Jane Scheihing...................... 52 Senior Vice President
Steven W. Menefee......................... 55 Senior Vice President and President, Arrow
Asia
Arthur H. Baer............................ 54 Vice President and President of Arrow Europe
Michael J. Long........................... 42 Vice President and President of the North
American Computer Products Group
Jan M. Salsgiver.......................... 44 Vice President and President of the North
American Components Organization
Stephen P. Kaufman joined Arrow as president of our Electronics
Distribution Division in 1982. He was appointed President and Chief Operating
Officer of Arrow in 1985. He served as Chief Executive Officer from 1986 through
July 2000, and has served as Chairman since May 1994. Prior to this, he served
in executive capacities with Midland-Ross Corporation and ten years prior to
that, was associated with McKinsey and Company, management consultants, where he
was a partner from 1976 to 1980. He serves on the Board of Directors for Harris
Corporation and Polaroid Corporation.
Francis M. Scricco has been President since June 1999 and was appointed
Chief Executive Officer in July 2000. From March 1994 through August 1997 he was
Group Vice President at Fischer Scientific International, Inc. Prior thereto, he
was President of Whirlpool Canada. He has also held positions with the General
Electric Company and The Boston Consulting Group.
Robert E. Klatell has been Executive Vice President since July 1995 and has
served as our Senior Vice President, General Counsel and Secretary for more than
six years. He also served as Chief Financial Officer from January 1992 to April
1996 and Treasurer from 1990 to April 1996.
Sam R. Leno was appointed Senior Vice President and Chief Financial Officer
effective March 1999. From July 1995 through February 1999, he served as
Executive Vice President and Chief Financial Officer of Corporate Express, Inc.
Prior thereto he was Chief Financial Officer of a mid-sized healthcare company
and for twenty-three years prior thereto he served in various financial
positions at Baxter International.
Betty Jane Scheihing has been Senior Vice President since May 1996 and
served as a Vice President for more than five years prior thereto.
Steven W. Menefee has been Senior Vice President of the company since July
1995 and served as a Vice President for more than five years prior thereto. In
addition, he was appointed President of Arrow Asia in September 1998.
Arthur H. Baer was named President of Arrow Europe and a Vice President in
January 2000. Prior to joining Arrow, he was President of Hudson Valley
Publishing, Inc. from February 1998 through December 1999 and President of Xyan,
Inc. from 1996 through February 1998. Prior thereto, he served as Dean of the
College of Business Administration at Drexel University from May 1993 through
April 1996.
Michael J. Long has been President and Chief Operating Officer of the North
American Computer Products Group since July 1999. In addition, he has been a
Vice President for more than five years and President of Gates/Arrow
Distributing since November 1995. Prior thereto he was President of Capstone
Electronics since 1994.
Jan M. Salsgiver has been President of NACO since July 1999. Prior thereto,
she served as President of the Arrow Supplier Services Group since its inception
in January 1998. Prior thereto, she was President of the Arrow/Schweber
Electronics Group since November 1995 and President of Zeus Electronics from
July 1993 to November 1995. In addition, she has been a Vice President for more
than five years.
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DESCRIPTION OF DEBENTURES
The debentures will be issued under an indenture dated as of January 15,
1997 between us and The Bank of New York, as trustee. We have summarized the
material terms and provisions of the debentures in this section, which
supplement the terms of the senior debt securities contained in the prospectus.
In addition to the material terms of the debentures contained in this prospectus
supplement, you should read the description of the indenture contained in the
prospectus for additional information regarding your rights as a holder of the
debentures before you buy any of these debentures. References in this section to
"us," "we" and "our" are solely to Arrow and not to our subsidiaries. References
in this section to the "indenture" shall mean the indenture, as supplemented by
the supplemental indenture relating to the debentures. In the event of any
inconsistency between the terms of the debentures contained in this prospectus
supplement and the provisions of the indenture contained in the prospectus, the
terms contained in this prospectus supplement shall control with respect to the
debentures.
GENERAL; RANKING
The debentures will be unsecured and unsubordinated obligations of our
company and are pari passu in right of payment with all of our existing and
future unsubordinated and unsecured obligations. The debentures are limited to
$ aggregate principal amount at maturity, plus an additional
$ aggregate principal amount at maturity if the underwriters'
over-allotment option is exercised in full. The debentures are scheduled to
mature on February , 2021. The debentures are being offered at a substantial
discount from their principal amount at maturity and will therefore have
original issue discount for U.S. federal income tax purposes. See "Certain
United States Federal Income Tax Considerations."
There will be no periodic cash payments of interest on the debentures,
except as described under "--Optional Conversion to Semiannual Coupon Debentures
Upon a Tax Event." In periods during which a debenture remains outstanding, the
accrual of original issue discount (the difference between the issue price of a
debenture and its principal amount at maturity) will be compounded semi-annually
using a year composed of twelve 30-day months. The accrual of original issue
discount will commence on the date the debentures are issued. Original issue
discount or, if the debentures are converted to semiannual coupon debentures
following the occurrence of a tax event, interest on the debentures, will cease
to accrue upon conversion, repurchase or redemption of the debentures under the
terms of the debentures. The principal amount at maturity of each debenture is
payable at the office or agency of the paying agent, in the Borough of
Manhattan, The City of New York, which shall initially be an office or agency of
the trustee, or any other office of the paying agent maintained for this
purpose. You may present debentures for conversion into common stock at the
office of the conversion agent. Debentures in definitive form may be presented
for exchange for other debentures or registration of transfer at the office of
the registrar. The trustee will initially serve as paying agent, conversion
agent and registrar. We will not impose a service charge for any registration,
transfer or exchange of debentures. However, we may require the holder to pay
for any tax, assessment or other governmental charge to be paid in connection
with any registration, transfer or exchange of debentures.
CONVERSION OF DEBENTURES BY HOLDERS
You may convert your debentures into shares of our common stock at any time
prior to maturity. However, if we elect to redeem a debenture, you may convert
it only until the close of business on the last trading day prior to a
redemption date, unless we fail to pay the redemption price. If you have
delivered a repurchase notice exercising your option to require us to repurchase
your debenture, you may not convert the debenture unless you withdraw the notice
in accordance with the terms of the indenture. Similarly, if you exercise your
option to require us to repurchase your debenture upon a Fundamental Change (as
defined in the indenture), that debenture may be converted only if you withdraw
your election to exercise your option in accordance with the terms of the
indenture. You may convert your debentures in whole or in part provided
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that you convert them in multiples of $1,000 principal amount at maturity. We
will deliver the shares issuable upon any conversion to the trustee no later
than the close of business on the seventh business day following the conversion
date.
The initial conversion rate is shares of common stock per $1,000
principal amount at maturity of debentures, subject to adjustment upon the
occurrence of the events described below. If, on conversion, you would be
entitled to a fractional share of common stock, you will instead receive cash in
an amount equal to the closing price of shares of our common stock on the
trading day immediately prior to the conversion date multiplied by such
fraction.
You will not receive any cash payment on conversion of a debenture
representing accrued original issue discount. Instead, accrued original issue
discount will be deemed paid in full rather than canceled, extinguished or
forfeited. Consequently, our delivery to you of the fixed number of shares of
our common stock into which the debenture is convertible, together with the cash
payment, if any, in lieu of a fractional share of our common stock, will be
deemed to satisfy our obligation to pay the principal amount at maturity of the
debenture, including accrued original issue discount attributable to the period
from the issue date to the conversion date. We will not adjust the conversion
ratio to account for accrued original issue discount.
The conversion date is the date on which all of the requirements for
delivery of the debenture for conversion have been satisfied.
The conversion rate is subject to adjustment to prevent dilution upon the
occurrence of any one of the following events:
(1) the issuance of our common stock as a dividend or distribution on our
common stock;
(2) the issuance to our stockholders of rights or warrants to purchase our
common stock at below market price;
(3) certain subdivisions, combinations and reclassifications of our
outstanding common stock;
(4) distributions to all our common stockholders of our capital stock, debt
securities, or other assets, excluding distributions of:
- common stock in the manner described in item (1) above;
- rights or warrants in the manner described in item (2) above; or
- cash in the manner described in item (5) below;
(5) cash distributions, excluding any quarterly cash dividend on our common
stock if the quarterly distribution does not exceed the greater of:
- the cash dividend per share from the previous quarter not requiring an
adjustment under this provision, as adjusted to reflect subdivisions
or combinations of our common stock; or
- 3.75% of the average of the last reported sales price of the common
stock during the 10 trading days immediately prior to the dividend
declaration date;
(6) payment in respect of a tender offer or exchange offer by us or any of
our subsidiaries for our common stock if the price per share exceeds
the current market price of our common stock on the next trading day
after the last date on which tenders or exchanges may be made; and
(7) payment in respect of certain tender offers or exchange offers by a
third party in which, as of the closing or expiration date of such
offer, our board of directors does not recommend rejection of the
offer, in which case an adjustment will be made only if:
- the tender offer or exchange offer increases the ownership of the
person making the offer to more than 25% of our common stock; and
- the cash and other consideration paid exceeds the market price of our
common stock on the next trading day after the last date on which
tenders or exchanges may be made.
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If an adjustment were required to be made under item (5) above as a result
of a quarterly distribution, the adjustment would be based upon the amount by
which the cash distributed exceeded the maximum quarterly dividend permitted
under that item. If an adjustment were required to be made under item (5) as a
result of a distribution other than a quarterly dividend, the adjustment would
be based upon the full amount of cash distributed. The adjustment referred to in
item (7) above will not be made if, as of the closing of the tender offer or
exchange offer, the offering documents disclose a plan or an intention to cause
us to engage in a consolidation, merger or sale of all or substantially all our
assets.
If our common stockholders become entitled to receive stock, other
securities, property, cash or other assets upon any reclassification of our
common stock, any consolidation or merger involving us, or any sale to another
entity of substantially all of our assets, then you will generally be able to
convert your debentures into the same type of consideration received by our
common stockholders as if you had done so immediately prior to the triggering
event.
We may increase the conversion rate for a period of at least 20 days so
long as:
- the increase remains irrevocable during that period; and
- our board of directors determines that the increase is in our best
interest, which determination shall be conclusive.
We must give at least seven days' advance notice of any increase in the
conversion rate. In addition to increases in the conversion rate of the type
described above, we may increase the conversion rate as we deem advisable to
avoid or diminish any income tax to holders of our common stock resulting from
any dividend or distribution of our stock, or rights to acquire stock, or from
any event treated as a dividend, distribution or right to acquire our stock for
income tax purposes. See "Certain United States Federal Income Tax
Considerations."
No adjustment in the conversion rate will be required unless the adjustment
would require a change of at least 1% in the conversion rate then in effect;
provided that any adjustment that would otherwise be required to be made will be
carried forward and taken into account in any subsequent adjustment.
Except as stated above, the conversion rate will not be adjusted for the
issuance of our common stock, any securities convertible into or exchangeable
for our common stock or any rights to purchase any of the foregoing.
If, following a tax event, we exercise our option to have interest accrue
on a debenture in lieu of original issue discount, you will be entitled to
receive on conversion the same number of shares of common stock that you would
have received had we not exercised our option. If we exercise our option,
debentures surrendered for conversion during the period from the close of
business on the record date next preceding the next interest payment date to the
opening of business on the next interest payment date (except debentures to be
redeemed on the next interest payment date) must also be accompanied by an
amount equal to the accrued and unpaid interest on the debenture that you are to
receive. Except where debentures surrendered for conversion must be accompanied
by the payment described in this paragraph, no interest on converted debentures
will be payable by us on any interest payment date subsequent to the date of
conversion. See "--Optional Conversion to Semiannual Coupon Debentures Upon a
Tax Event."
In the event of a taxable distribution to our common stockholders or in
certain other circumstances requiring an adjustment to the conversion rate, the
debenture holders may, in certain circumstances, be deemed to have received a
distribution subject to United States income tax as a dividend. In certain other
circumstances, the absence of an adjustment may result in a taxable dividend to
the holders of common stock. See "Certain United States Federal Income Tax
Considerations."
REDEMPTION OF DEBENTURES AT OUR OPTION
We may not redeem the debentures before February , 2006. Beginning on
February , 2006, we may redeem the debentures for cash in whole or in part at
any time, by mailing a redemption notice to the debenture holders not less than
30 days nor more than 60 days prior to the redemption date. You can convert
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the debentures after they are called for redemption at any time up to three
business days prior to the redemption date.
The redemption price will be an amount in cash equal to 100% of the sum of:
- $ , the original issue price per $1,000 principal amount; and
- accrued original issue discount up to and including the date of
redemption.
The debentures will be redeemable in multiples of $1,000 principal amount
at maturity. There is no sinking fund for the debentures.
The table below shows redemption prices of debentures per $1,000 principal
amount at maturity at February , 2006, and at each February thereafter until
maturity on February , 2021. These redemption prices reflect accrued original
issue discount up to and including each redemption date. The redemption price of
a debenture redeemed between any two of the dates listed below would include an
additional amount reflecting original issue discount accrued from the next
preceding redemption date through the actual date of redemption.
(2)
ACCRUED
(1) ORIGINAL ISSUE (3)
DEBENTURE DISCOUNT REDEMPTION
ISSUE PRICE AT % PRICE (1) + (2)
----------- -------------- ---------------
February , 2006.............................
February , 2007.............................
February , 2008.............................
February , 2009.............................
February , 2010.............................
February , 2011.............................
February , 2012.............................
February , 2013.............................
February , 2014.............................
February , 2015.............................
February , 2016.............................
February , 2017.............................
February , 2018.............................
February , 2019.............................
February , 2020.............................
At Stated Maturity (February , 2021)........
If we elect to convert the debentures to semiannual coupon debentures
following a tax event, the debentures will be redeemable at the Restated
Principal Amount (as described below) plus accrued and unpaid interest, if any,
to the applicable redemption date.
If less than all of the outstanding debentures held in certificated form
are to be redeemed, the trustee will select the debentures held in certificated
form to be redeemed in principal amounts at maturity of $1,000 or integral
multiples thereof by lot, pro rata or by another method the trustee considers
fair and appropriate. If a portion of your certificated debentures is selected
for partial redemption and you convert a portion of your debentures, the
converted portion will be deemed to be the portion selected for redemption.
Debentures registered in the name of DTC or its nominee will be redeemed as
described under "Book Entry System".
REPURCHASE OF DEBENTURES AT THE OPTION OF THE HOLDER
You have the right to require us to repurchase the debentures on February
, 2006, February , 2011 and February , 2016. We will be required to
repurchase any outstanding debenture for which you
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deliver a written repurchase notice to the paying agent. This notice must be
delivered during the period beginning at any time from the opening of business
on the date that is 20 business days prior to the repurchase date until the
close of business on the repurchase date. If a repurchase notice is given and
withdrawn during that period, we will not be obligated to repurchase the
debentures listed in the notice. Our repurchase obligation will be subject to
certain additional conditions.
The repurchase price payable for a debenture will be equal to the issue
price plus accrued original issue discount through the repurchase date. If,
prior to the repurchase date, we have elected to convert the debentures to
semiannual coupon debentures following a tax event, the repurchase price will be
equal to the Restated Principal Amount plus accrued and unpaid interest to the
repurchase date. See "--Optional Conversion to Semiannual Coupon Debentures Upon
a Tax Event." The table below shows the repurchase prices of a debenture as of
the specified repurchase dates.
REPURCHASE DATE REPURCHASE PRICE
--------------- ----------------
February , 2006...........................................
February , 2011...........................................
February , 2016...........................................
We may, at our option, elect to pay the repurchase price in cash, in shares
of our common stock or in any combination of the two. For a discussion of the
tax treatment of debenture holders receiving cash, shares of our common stock or
both, see "Certain United States Federal Income Tax Considerations."
If we elect to pay the repurchase price, in whole or in part, in shares of
our common stock, the number of shares to be delivered in exchange for the
portion of the repurchase price to be paid in our common stock will be equal to
that portion of the repurchase price divided by the market price (as defined
below) of our common stock. We will not, however, deliver fractional shares in
repurchases using shares of our common stock as consideration. Debenture holders
who would otherwise be entitled to receive fractional shares will instead
receive cash in an amount equal to the market price of a share of our common
stock multiplied by such fraction.
Your right to require us to repurchase debentures is exercisable by
delivering a written repurchase notice to the paying agent within 20 business
days of the repurchase date. The paying agent initially will be the trustee.
The repurchase notice must state:
(1) if certificated debentures have been issued, the debenture certificate
numbers (or, if your debentures are not certificated, your repurchase
notice must comply with appropriate DTC procedures);
(2) the portion of the principal amount at maturity of debentures to be
repurchased, which must be in $1,000 multiples;
(3) that the debentures are to be repurchased by us pursuant to the
applicable provisions of the debentures and the indenture; and
(4) your election, in the event that we decide to pay all or a portion of
the repurchase price in shares of our common stock but prove unable to
satisfy the conditions for common stock payment and ultimately have to
pay cash, to:
- withdraw your repurchase notice with respect to all or a portion of
the debentures listed therein; or
- receive cash for the entire repurchase price for all the debentures
listed in your repurchase notice.
If you fail to indicate your election under item (4) above, you will be
deemed to have elected to receive cash for the entire repurchase price for all
the debentures listed in your repurchase notice.
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You may withdraw any written repurchase notice by delivering a written
notice of withdrawal to the paying agent prior to the close of business of the
repurchase date. The withdrawal notice must state:
- the principal amount at maturity of the withdrawn debentures;
- if certificated debentures have been issued, the certificate numbers of
the withdrawn debentures (or, if your debentures are not certificated,
your withdrawal notice must comply with appropriate DTC procedures); and
- the principal amount at maturity, if any, which remains subject to the
repurchase notice.
We must give notice of an upcoming repurchase date to all debenture holders
not less than 20 business days prior to the repurchase date at their addresses
shown in the register of the registrar. We will also give notice to beneficial
owners as required by applicable law. This notice will state, among other
things:
- whether we will pay the repurchase price of the debentures in cash,
shares of our common stock, or both (in which case the relative
percentages will be specified);
- if we elect to pay all or a portion of the repurchase price in shares of
our common stock, the method by which we are required to calculate
"market price" of the common stock; and
- the procedures that holders must follow to require us to repurchase their
debentures.
The "market price" means the average sale price of our common stock for the
five trading days ending on the third business day prior to the applicable
repurchase date (assuming the third business day prior to the applicable
repurchase date is a trading day, or if not, the five trading days ending on the
last trading day prior to the third business day), appropriately adjusted to
take into account the occurrence of certain events that would result in an
adjustment of the conversion rate with respect to our common stock.
The "sale price" of our common stock on any date means the closing sale
price per share of our common stock on that date (or if no closing sale price is
reported, the average of the bid and ask prices or, if more than one in either
case, the average of the average bid and the average ask prices) as reported on
the New York Stock Exchange.
Because the market price of our common stock will be determined prior to
the applicable repurchase date, debenture holders bear the market risk that our
common stock will decline in value between the date the market price is
calculated and the repurchase date. We may pay the repurchase price or any
portion of the repurchase price in shares of our common stock only if our common
stock is listed on a United States national securities exchange or quoted in an
inter-dealer quotation system of any registered United States national
securities association.
Upon determination of the actual number of shares of our common stock to be
issued in accordance with the foregoing provisions, if required, we will notify
the securities exchanges or quotation systems on which our common stock is then
listed or quoted and disseminate the number of shares to be issued on our
website or through another public medium.
Our right to repurchase your debentures, in whole or in part, with shares
of our common stock is subject to various conditions, including:
- registration of the shares of our common stock to be issued upon
repurchase under the Securities Act and the Exchange Act, if required;
and
- qualification or registration of the shares of our common stock to be
issued upon repurchase under applicable state securities laws, if
necessary, or the availability of an exemption therefrom.
If these conditions are not satisfied by a repurchase date, we will pay the
repurchase price of the debentures to be repurchased entirely in cash. We may
not change the form or components or percentages of components of consideration
to be paid for the debentures once we have given the debenture holders the
required notice, except as described in the preceding sentence.
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Payment of the repurchase price for a debenture for which a repurchase
notice has been delivered and not withdrawn is conditioned upon book-entry
transfer or delivery of the debenture, together with necessary endorsements, to
the paying agent at its office in the Borough of Manhattan, The City of New
York, or any other office of the paying agent, at any time after delivery of the
repurchase notice. Payment of the repurchase price for the debenture will be
made promptly following the later of the repurchase date and the time of book-
entry transfer or delivery of the debenture. If the paying agent holds money or
securities sufficient to pay the repurchase price of the debenture on the
business day following the repurchase date, then, on and after the date:
- the debenture will cease to be outstanding;
- original issue discount (or, if the debentures have been converted to
interest-bearing debentures following a tax event, interest) will cease
to accrue; and
- all other rights of the holder will terminate.
This will be the case whether or not book-entry transfer of the debenture
has been made or the debenture has been delivered to the paying agent, and all
other rights of the debenture holder will terminate, other than the right to
receive the repurchase price upon delivery of the debenture.
Our ability to repurchase debentures with cash may be limited by the terms
of our then-existing borrowing agreements. The indenture will prohibit us from
repurchasing debentures for cash from debenture holders if any event of default
under the indenture has occurred and is continuing, except a default in the
payment of the repurchase price with respect to the debentures.
Even though we become obligated to repurchase any outstanding debenture on
a repurchase date, we may not have sufficient funds to pay the repurchase price
on that repurchase date. If this were to occur, we could be required to issue
shares of our common stock to pay the repurchase price at valuations based on
then prevailing market prices for all debentures tendered by their holders.
We will comply with the provisions of Rule 13e-4 and any other tender offer
rules under the Exchange Act that may be applicable at the time of the tender
offer. We will file a Schedule TO or any other schedule required in connection
with any offer by us to repurchase the debentures.
REPURCHASE AT THE OPTION OF THE HOLDER UPON A FUNDAMENTAL CHANGE
If we undergo a Fundamental Change (as defined below), you will have the
option to require us to purchase for cash any or all of your debentures on a
purchase date that is 30 days after the date we provide you with notice of such
Fundamental Change. We will pay a purchase price equal to the issue price plus
accrued original issue discount through the purchase date or, if applicable, the
Restated Principal Amount plus accrued and unpaid interest through the date of
purchase. You may require us to purchase all or any part of your debentures
provided that the principal amount at maturity of the debentures being purchased
is an integral multiple of $1,000.
A "Fundamental Change" is the occurrence of any transaction or event in
connection with which all or substantially all of our common stock will be
exchanged for, converted into, acquired for or constitute solely the right to
receive (whether by means of an exchange offer, liquidation, tender offer,
consolidation, merger, combination, reclassification, recapitalization or any
other method) any form of consideration which is not all or substantially all
common stock listed (or, upon consummation of or immediately following such
transaction or event, which will be listed) on a United States national
securities exchange or approved for quotation on the Nasdaq's National Market or
any similar United States system of automated dissemination of quotations of
securities prices.
In order to exercise your right to require us to repurchase your debentures
upon a Fundamental Change, you must deliver a written notice to the paying agent
prior to the close of business on the business day prior to the date on which
the debentures are to be repurchased. You may withdraw the notice by delivering
a written withdrawal notice to the paying agent before the repurchase date. On
or before the 10th day following a
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Fundamental Change, we are required to mail to the trustee and all debenture
holders of record a written notice:
- stating that a Fundamental Change has occurred; and
- explaining the repurchase rights that have arisen as a consequence of the
Fundamental Change.
To exercise your repurchase right, you must deliver to us (or our designated
agent) within 30 days after the date of our Fundamental Change notice:
- written notice of your election to exercise your repurchase right; and
- the debentures to be repurchased duly endorsed for transfer.
Payment for debentures surrendered for repurchase (and not withdrawn) prior to
the expiration of the 30-day period will be made promptly following the
repurchase date.
If, following a tax event, we have previously exercised our option to pay
interest on the debentures instead of accruing original issue discount, we will
purchase the debentures at a cash price equal to the Restated Principal Amount
plus accrued and unpaid interest from the date we exercised our option. See
"--Optional Conversion to Semiannual Coupon Debentures Upon a Tax Event."
In the event of a Fundamental Change, we will comply with the provisions of
Rule 13e-4 and any other tender offer rules under the Exchange Act that may be
applicable at the time we repurchase the debentures. We will also file a
Schedule TO or any other schedule required in connection with any offer by us to
repurchase the debentures.
The repurchase rights of the debenture holders could discourage a potential
acquirer from acquiring us, but the Fundamental Change repurchase feature does
not result from management's knowledge of any potential acquirer's attempt to
obtain control of us, nor is it part of an anti-takeover strategy on the part of
management.
The term "Fundamental Change" is limited to specific types of transactions
and does not include other events that might adversely affect our financial
condition. Moreover, the Fundamental Change repurchase feature may not protect
you in the event of a highly leveraged transaction, reorganization, merger or
similar transaction involving or affecting us.
No debentures may be repurchased at the option of holders upon a
Fundamental Change if there has occurred and is continuing an event of default
described under "--Events of Default; Notice and Waiver" below. However,
debentures may be repurchased if the event of default is in the payment of the
Fundamental Change purchase price with respect to the debentures.
OPTIONAL CONVERSION TO SEMIANNUAL COUPON DEBENTURES UPON A TAX EVENT
We have the option to convert the debentures to interest-bearing debentures
following a tax event. From and after the date a tax event occurs, we may elect
to pay interest at % per year on the debentures instead of accruing
original issue discount. The principal amount will be restated as the sum of (A)
the issue price and (B) the amount of original issue discount accrued up to the
date we exercise our conversion option. This "Restated Principal Amount" will
then be the amount due at maturity. If we elect this option, interest will be
based on a 360-day year comprised of twelve 30-day months. Interest will accrue
from the date we exercise our conversion option and will be payable semiannually
on February to holders of record on the immediately preceding February and
on August to holders of record on the immediately preceding August .
A tax event occurs when we receive an opinion from tax counsel stating
that, for United States federal income tax purposes, there is more than an
insubstantial risk that all or a portion of the interest, including
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original issue discount, payable on the debentures would not be deductible by us
either (A) on a current accrual basis or (B) under any other method, as a result
of either:
- any amendment, change or announced prospective change in the laws or
regulations of the United States or any of its political subdivisions or
taxing authorities; or
- any amendment, change, interpretation or application of the laws or
regulations by any legislative body, court, government agency or
regulatory authority.
EVENTS OF DEFAULT; NOTICE AND WAIVER
If an event of default has occurred and is continuing, the indenture
provides that either the trustee or the holders of at least 25% in aggregate
principal amount at maturity of the debentures then outstanding, in the case of
an event of default described under paragraphs (1) and (2) below under the
definition of events of default, or the holders of 25% in aggregate principal
amount of the debt securities of all affected series then issued and outstanding
under the indenture, in the case of an event of default specified under
paragraphs (3) and (4) under the definition of events of default, may declare
due and payable:
- the issue price of the debentures (or, if the debentures are converted to
interest-bearing debentures following a tax event, the Restated Principal
Amount); plus
- original issue discount accrued and unpaid on the debentures to the date
of the declaration (or, if the debentures are converted to
interest-bearing debentures following a tax event, interest accrued and
unpaid on the debentures to the date of the declaration).
In the case of certain events of bankruptcy or insolvency, the issue price
plus original issue discount accrued and unpaid on the debentures to the date of
the event (or, if the debentures are converted to interest-bearing debentures
following a tax event, the Restated Principal Amount plus interest accrued and
unpaid on the debentures to the date of the event) will automatically become
immediately due and payable.
Under circumstances specified in the indenture, the holders of a majority
in aggregate principal amount at maturity of the outstanding debentures may
rescind any acceleration of the debentures so that they will not become
immediately due and payable.
Cash interest will accrue at the rate of % per annum and be payable on
demand upon a default in the payment of any redemption price or purchase price
and, after acceleration, of the issue price plus accrued original issue discount
(or, if the debentures are converted to interest-bearing debentures following a
tax event, the Restated Principal Amount plus accrued and unpaid interest) to
the extent such payment of the interest is legally enforceable. Original issue
discount or, if the debentures are converted to semiannual coupon debentures
following the occurrence of a tax event, interest on the debentures (except as
provided in the first sentence of this paragraph), will cease to accrue after
declaration of acceleration.
The following constitute events of default under the indenture with respect
to the debentures:
(1) our failure to pay any of the following when each becomes due and
payable:
- the principal amount of the debentures (or, if the debentures have
been converted to interest-bearing debentures following a tax event,
the Restated Principal Amount) at stated maturity;
- the issue price;
- accrued and unpaid original issue discount (or, if the debentures have
been converted to interest-bearing debentures following a tax event,
accrued and unpaid interest);
- redemption price;
- repurchase price; or
- Fundamental Change purchase price;
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(2) our failure for 30 days to pay any interest (assuming conversion of the
debentures to interest-bearing debentures following a tax event) due on
the debentures;
(3) our failure to comply with any of our covenants or agreements set forth
in the indenture or the debentures for 30 days after written notice by
the trustee or by the holders of at least 25% in principal amount at
maturity of the outstanding debentures;
(4) certain events involving our bankruptcy, insolvency or reorganization
or the bankruptcy, insolvency or reorganization of any of our
Restricted Subsidiaries, as such term is defined in the prospectus
under "Description of Debt Securities--Certain Definitions."
The trustee will give notice to the debenture holders of any continuing
default known to the trustee within 90 days after the trustee becomes aware of
it. However, the trustee may withhold notice to the debenture holders of any
default or event of default, except for defaults in any payment on the
debentures, if the trustee considers it in the best interest of the debenture
holders to do so.
The holders of a majority in aggregate principal amount at maturity of the
outstanding debentures may direct the time, place and method of conducting any
proceeding for any remedy available to the trustee or exercising any trust or
power conferred on the trustee. However, such direction may not conflict with
any law or the indenture and will be subject to certain other limitations.
Before exercising any right or power under the indenture at the direction of the
debenture holders, the trustee will be entitled to receive security or indemnity
satisfactory to the trustee against the costs, expenses and liabilities incurred
by the trustee in complying with the direction of the debenture holders. No
debenture holder will have any right to pursue any remedy with respect to the
indenture or the debentures unless:
(1) the debenture holder has previously given us and the trustee written
notice of a continuing event of default;
(2) the holders of at least 25% in aggregate principal amount at maturity
of the outstanding debentures have made a written request to the
trustee to pursue the remedy;
(3) the debenture holder or holders have offered the trustee indemnity
satisfactory to the trustee;
(4) the holders of a majority in aggregate principal amount at maturity of
the outstanding debentures have not given the trustee a direction
inconsistent with the request within 60 days of the trustee's receipt
of the request; and
(5) the trustee has failed to comply with the request within a 60-day
period.
However, none of the following rights of any debenture holder may be
impaired or adversely affected without the debenture holder's consent:
(1) the right to receive payments of principal (including the issue price
and accrued original issue discount) or interest in respect of any
default in payment under a debenture on or after the due date;
(2) the right to institute suit for the enforcement of any payments or
conversion; or
(3) the right to convert debentures.
The holders of at least a majority in aggregate principal amount at
maturity of the outstanding debentures may waive an existing default and its
consequences, other than:
- any default in any payment on the debentures;
- any default with respect to the conversion rights of the debentures; or
- any default in respect of certain covenants or provisions in the
indenture which may not be modified without the consent of the holder of
each debenture as described under the caption entitled "--Modification
and Waiver" below.
We will be required to furnish to the trustee annually a statement as to
any default by us in the performance and observance of our obligations under the
indenture.
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MODIFICATION AND WAIVER
In addition to the provisions contained under "Description of Debt
Securities--Modification of the Indenture" in the prospectus, we may not amend,
modify or supplement the indenture without the consent of each holder affected
if the effect of such amendment, modification or supplement would be to:
(1) reduce the repurchase price or Fundamental Change purchase price;
(2) alter the manner or rate of accrual of original issue discount or
interest, if any;
(3) make any debenture payable in money or securities of a type other than
that stated in the debentures;
(4) impair the right to institute suit for payment under, or conversion of,
the debentures;
(5) reduce the quorum or voting requirements under the indenture;
(6) change any obligation of Arrow to maintain an office or agency in the
places and for the purposes specified in the indenture; or
(7) make any change that adversely affects the right to convert any
debenture or the right to require us to repurchase a debenture or the
right to require us to repurchase a debenture upon a Fundamental
Change.
PAYMENT AND PAYING AGENTS
Payments on the debentures not made in shares of our common stock will be
made in U.S. dollars at the office of the trustee. At our option, however, we
may make payments by check mailed to the holder's registered address or, with
respect to global debentures, by wire transfer. We will make interest payments
to the person in whose name the debenture is registered at the close of business
on the record date for the interest payment.
The trustee initially will be designated as our paying agent for payments
on debentures. We may at any time designate additional paying agents or rescind
the designation of any paying agent or approve a change in the office through
which any paying agent acts.
Subject to the requirements of any applicable abandoned property laws, the
trustee and paying agent shall pay to us upon written request any money held by
them for payments on the debentures that remain unclaimed for two years after
the date upon which that payment has become due. After payment to us, holders
entitled to the money must look to us for payment. In that case, all liability
of the trustee or paying agent with respect to that money will cease.
INFORMATION CONCERNING THE TRUSTEE
We have appointed The Bank of New York as trustee under the indenture, and
as paying agent, conversion agent, registrar and custodian with regard to the
debentures.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
This section summarizes some of the U.S. federal income tax considerations
relating to the purchase, ownership, and disposition of the debentures and of
common stock into which the debentures may be converted. This summary does not
provide a complete analysis of all potential tax considerations. The information
provided below is based on existing authorities. These authorities may change,
or the Internal Revenue Service (the "IRS") might interpret the existing
authorities differently. In either case, the tax consequences of purchasing,
owning or disposing of debentures or common stock could differ from those
described below. The summary generally applies only to holders that are U.S.
holders that purchase debentures in the initial offering at their issue price
and hold the debentures or common stock as "capital assets" (generally, for
investment). The summary generally does not address tax considerations that may
be relevant to particular investors because of their specific circumstances, or
because they are subject to special rules. Finally, the summary does not
describe the effect of the federal estate and gift tax laws or the effects of
any applicable foreign, state, or local laws.
INVESTORS CONSIDERING THE PURCHASE OF DEBENTURES SHOULD CONSULT THEIR OWN
TAX ADVISORS REGARDING THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO
THEIR PARTICULAR SITUATIONS AND THE CONSEQUENCES OF FEDERAL ESTATE OR GIFT TAX
LAWS, FOREIGN, STATE, OR LOCAL LAWS, AND TAX TREATIES.
As used herein, the term "U.S. holder" means a holder of a debenture or
common stock that is, for U.S. federal income tax purposes:
- a citizen or resident of the United States;
- a corporation or partnership created or organized in or under the laws of
the United States or any state therein;
- an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
- a trust if a U.S. court is able to exercise primary supervision over its
administration and one or more U.S. persons have the authority to control
all of its substantial decisions.
ORIGINAL ISSUE DISCOUNT
Because the debentures do not provide for payments of fixed periodic
interest, they will be sold at a discount from their principal amount at
maturity. Investors will in effect receive interest at maturity, unless the
debentures are converted or redeemed before then, by receiving a principal
amount greater than the issue price of the debentures. Because this excess of
principal over issue price is economically equivalent to interest, the U.S. tax
rules require that this amount (referred to as "original issue discount") be
recognized as interest income over the term of the debentures. The amount of
accrued interest for each period is determined under a constant yield method, so
that the accrued interest for any period equals a constant percentage of the
holder's investment (including the original purchase price of the debenture plus
any previously accrued interest). Because the holder's investment increases each
period, the amount of interest income for each period will increase as the
debentures get closer to maturity.
We will be required to furnish annually to the IRS and to certain
noncorporate holders information regarding the amount of original issue discount
allocable to the year. For this purpose, we will use six-month accrual periods
that begin or end on the maturity date of the debentures.
SALE, EXCHANGE OR REDEMPTION OF THE DEBENTURES
Except as described below, a holder will recognize capital gain or loss if
the holder disposes of a debenture in a sale, redemption or exchange other than
a conversion of the debenture into common stock. The holder's gain or loss will
equal the difference between the proceeds received by the holder and the
holder's adjusted tax basis in the debenture. The proceeds received by the
holder will include the amount of any cash and the fair market value of any
other property received for the debenture. The holder's tax basis in the
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debenture will generally equal the amount the holder paid for the debenture,
increased by previously accrued original issue discount. The gain or loss
recognized by a holder on a disposition of the debenture will be long-term
capital gain or loss if the holder held the debenture for more than one year.
Long-term capital gains of individual taxpayers are generally taxed at a maximum
rate of 20 percent. The deductibility of capital losses is subject to
limitation.
If a holder elects to exercise his option to tender debentures to us on a
February , 2006, February , 2011 or February , 2016 purchase date
and we issue common stock in satisfaction of all or part of the purchase price,
the exchange of the debentures for common stock should qualify as a
reorganization for federal income tax purposes. If we pay the purchase price
solely in common stock, the holder generally should not recognize any gain or
loss. If we pay the purchase price with a combination of common stock and cash,
the holder would be required to recognize any gain realized, but only to the
extent of the cash received. The holder would not be allowed to recognize any
loss. Because the price we will pay will equal the issue price plus accrued
original issue discount, however, the amount received by an initial holder
should equal the holder's tax basis and the holder should not realize any gain
or loss. If we pay all or part of the purchase price with common stock and the
holder receives cash in lieu of a fractional share of stock, the holder would be
treated as if he received the fractional share and then had the fractional share
redeemed for the cash. The holder would recognize capital gain or loss equal to
the difference between the cash received and that portion of his basis in the
stock attributable to the fractional share. A holder's initial tax basis in his
common stock (including any fractional share) should equal the holder's adjusted
basis in the debentures tendered, increased by the amount of gain recognized and
decreased by the amount of cash received. The holder's holding period for his
common stock should include the period during which the holder held his
debentures. The holding period for common stock attributable to original issue
discount, however, might begin on the day following the exchange date.
CONVERSION OF THE DEBENTURES
A holder generally will not recognize any income, gain or loss on
converting a debenture into common stock. If the holder receives cash in lieu of
a fractional share of stock, however, the holder would be treated as described
in the preceding paragraph. The holder's holding period for the stock will
include the period during which he or she held the debenture. The holding period
for common stock attributable to original issue discount, however, might begin
on the day following conversion.
DIVIDENDS
If, after a holder converts a debenture into common stock, we make a
distribution in respect of that stock, the distribution will be treated as a
dividend, taxable to the holder as ordinary income, to the extent it is paid
from our current or accumulated earnings and profits. If the distribution
exceeds our current and accumulated profits, the excess will be treated first as
a tax-free return of the holder's investment, up to the holder's basis in its
common stock. Any remaining excess will be treated as capital gain. If the
holder is a U.S. corporation, it would generally be able to claim a deduction
equal to a portion of any dividends received.
The terms of the debentures allow for changes in the conversion rate of the
debentures in certain circumstances. A change in conversion price that allows
debentureholders to receive more shares of common stock on conversion may
increase the debentureholders' proportionate interests in our earnings and
profits or assets. In that case, the debentureholders would be treated as though
they received a dividend in the form of our stock. Such a constructive stock
dividend could be taxable to the debentureholders, although they would not
actually receive any cash or other property. A taxable constructive stock
dividend would result, for example, if the conversion rate is adjusted to
compensate debentureholders for distributions of cash or property to our
shareholders. Not all changes in conversion rate that allow debentureholders to
receive more stock on conversion, however, increase the debenture-holders'
proportionate interests in the company. For instance, a change in conversion
rate could simply prevent the dilution of the debentureholders' interests upon a
stock split or other change in capital structure. Changes of this type, if made
by a bona fide, reasonable adjustment formula, are not treated as constructive
stock dividends. Conversely, if an event occurs that dilutes the
debentureholders' interests and the conversion rate is not adjusted, the
resulting increase in the
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proportionate interests of our shareholders could be treated as a taxable stock
dividend to them. Any taxable constructive stock dividends resulting from a
change to, or failure to change, the conversion rate would be treated like
dividends paid in cash or other property. They would result in ordinary income
to the recipient, to the extent of our current or accumulated earnings and
profits, with any excess treated as a tax-free return of capital or as capital
gain.
SALE OF COMMON STOCK
A holder will generally recognize capital gain or loss on a sale or
exchange of common stock. The holder's gain or loss will equal the difference
between the proceeds received by the holder and the holder's adjusted tax basis
in the stock. The proceeds received by the holder will include the amount of any
cash and the fair market value of any other property received for the stock. The
gain or loss recognized by a holder on a sale or exchange of stock will be
long-term capital gain or loss if the holder held the stock for more than one
year. In the case of individuals, long-term capital gains are generally taxed at
a maximum rate of 20 percent, while the deductibility of capital losses is
subject to limitation.
BACKUP WITHHOLDING AND INFORMATION REPORTING
The Internal Revenue Code and the Treasury regulations require those who
make specified payments to report the payments to the IRS. Among the specified
payments are interest (including original issue discount), dividends, and
proceeds paid by brokers to their customers. The required information returns
enable the IRS to determine whether the recipient properly included the payments
in income. This reporting regime is reinforced by "backup withholding" rules.
These rules require the payors to withhold tax at a 31 percent rate from
payments subject to information reporting if the recipient fails to cooperate
with the reporting regime by failing to provide his taxpayer identification
number to the payor, furnishing an incorrect identification number, or
repeatedly failing to report interest or dividends on his returns. The
information reporting and backup withholding rules do not apply to payments to
corporations, whether domestic or foreign.
Payments of dividends to individual holders of common stock will generally
be subject to information reporting, and will be subject to backup withholding
unless the holder provides us or our paying agent with a correct taxpayer
identification number.
Payments made to holders by a broker upon a sale of debentures or common
stock will generally be subject to information reporting and backup withholding.
If, however, the sale is made through a foreign office of a U.S. broker, the
sale will be subject to information reporting but not backup withholding. If the
sale is made through a foreign office of a foreign broker, the sale will
generally not be subject to either information reporting or backup withholding.
This exception may not apply, however, if the foreign broker is owned or
controlled by U.S. persons, or is engaged in a U.S. trade or business. Any
amounts withheld from a payment to a holder of debentures or common stock under
the backup withholding rules can be credited against any U.S. federal income tax
liability of the holder.
TAX EVENT
The modification of the terms of the debentures by us upon a tax event as
described in "Description of Debentures--Optional Conversion to Semiannual
Coupon Debentures Upon a Tax Event," could alter the timing of income
recognition by the holders regarding the semiannual payments of interest due
after the option exercise date.
THE PRECEDING DISCUSSION OF CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
IS FOR GENERAL INFORMATION ONLY. IT IS NOT TAX ADVICE, EACH PROSPECTIVE INVESTOR
SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR U.S. FEDERAL, STATE,
LOCAL, AND FOREIGN TAX CONSEQUENCES OF PURCHASING, HOLDING, AND DISPOSING OF OUR
DEBENTURES OR COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN
APPLICABLE LAWS.
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UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus supplement, the underwriters named
below have severally agreed to purchase, and we have agreed to sell to them, the
following principal amounts of debentures:
NAME PRINCIPAL AMOUNT
---- ----------------
Morgan Stanley & Co. Incorporated...........................
Credit Suisse First Boston Corporation......................
Goldman, Sachs & Co. .......................................
Banc of America Securities LLC..............................
J.P. Morgan Securities Inc. ................................
Robertson Stephens, Inc. ...................................
-----------
Total....................................................... $
===========
The underwriting agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the debentures offered by this
prospectus supplement are subject to the approval of certain legal matters by
their counsel and to certain other conditions. The underwriters are obligated to
take and pay for all of the debentures offered by this prospectus supplement if
any such debentures are taken. However, the underwriters are not required to
take or pay for the debentures covered by the underwriters over-allotment option
described below.
The underwriters initially propose to offer part of the debentures directly
to the public at the public offering price listed on the cover page of this
prospectus supplement and part to certain dealers at a price that represents a
concession not in excess of $ per debenture. Any underwriter may allow,
and such dealers may reallow, a concession not in excess of $ per
debenture to other underwriters or to certain dealers. After the debentures are
released to the public, the offering price and other selling terms may from time
to time be varied by the underwriters named on the cover page of this prospectus
supplement.
We have granted to the underwriters an option, exercisable within 30 days
of the date of this prospectus supplement, to purchase up to an additional
$ aggregate principal amount at maturity of the debentures at the
public offering price set forth on the cover page of this prospectus supplement,
less underwriting discounts and commissions. The underwriters may exercise the
option solely for the purpose of covering over-allotments if any, made in
connection with the offering of debentures offered by this prospectus
supplement. To the extent the option is exercised, each underwriter will become
obligated to purchase approximately the same percentage of the additional
debentures as the underwriter purchased in the original offering. If the
underwriters' option is exercised in full, the total price to the public would
be $ , the total underwriters' discounts and commissions would be
$ and total proceeds to us would be $ .
The debentures are a new issue of securities with no established trading
market. The underwriters have advised us that they presently intend to make a
market in the debentures as permitted by applicable laws and regulations. The
underwriters are not obligated, however, to make a market in the debentures and
any such market-making activity may be discontinued at any time at the sole
discretion of the underwriters. Accordingly, we cannot assure you as to the
liquidity of, or trading markets for, the debentures.
We, our directors and our executive officers are agreeing that, without the
prior written consent of Morgan Stanley & Co. Incorporated on behalf of the
underwriters, each of us will not, during the period ending 90 days after the
date of this prospectus supplement:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
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- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock
whether any transaction described above is to be settled by delivery of common
stock or such other securities, in cash or otherwise.
We may, without such consent, however:
- issue and sell the debentures offered hereby;
- issue the common stock issuable upon conversion of the debentures; and
- grant options or issue and sell stock upon the exercise of outstanding
stock options or otherwise pursuant to our stock option or employee stock
purchase plans;
and, with respect to Messrs. Kaufman and Klatell, they may, without such
consent, contract to sell and sell up to 1,000,000 shares and 120,000 shares of
common stock, respectively, after five trading days from the date of pricing of
this offering.
In order to facilitate the offering of the debentures and the common stock,
the underwriters may engage in transactions that stabilize, maintain or
otherwise affect the price of the debentures or the common stock. Specifically,
the underwriters may over-allot in connection with the offering, creating a
short position in the debentures for their own account. In addition, to cover
over-allotments or to stabilize the price of the debentures, the underwriters
may bid for, and purchase, the debentures or shares of the common stock in the
open market. Finally, the underwriting syndicate may reclaim selling concessions
allowed to an underwriter or a dealer for distributing the debentures in the
offering, if the syndicate repurchases previously distributed debentures in
transactions to cover syndicate short positions, in stabilization transactions
or otherwise. Any of these activities may stabilize or maintain the market price
of the debentures or the common stock above independent market levels. The
underwriters are not required to engage in these activities, and may end any of
these activities at any time.
From time to time, the underwriters or their affiliates may provide
investment banking services to us, for which they have received customary
compensation. We will apply $400 million of the net proceeds of this offering to
repay our short-term indebtedness to an affiliate of Morgan Stanley Dean Witter.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the debentures will be passed upon for us by Milbank,
Tweed, Hadley & McCloy LLP. Certain legal matters will be passed on for the
underwriters by Davis Polk & Wardwell.
EXPERTS
The consolidated financial statements of Arrow Electronics, Inc. at
December 31, 1999 and 1998, and for each of the three years in the period ended
December 31, 1999, appearing in our Annual Report on Form 10-K for the fiscal
year ended December 31, 1999 and incorporated by reference in the prospectus,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report dated February 16, 2000 incorporated in the prospectus by reference
and are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
The audited historical financial statements of the Wyle Electronics Group
incorporated in this Supplement by reference to Arrow Electronics, Inc's Form
8-K dated September 1, 2000 have been so incorporated in reliance on the report
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED FEBRUARY 13, 2001.
PROSPECTUS
$2,000,000,000
-------------
ARROW ELECTRONICS, INC.
DEBT SECURITIES
PREFERRED STOCK
COMMON STOCK
WARRANTS
We may offer and sell the securities from time to time in one or more
offerings. This prospectus provides you with a general description of the
securities we may offer.
Each time we sell securities, we will provide a supplement to this
prospectus that contains specific information about the offering and the terms
of the securities. The supplement may also add, update or change information
contained in this prospectus. You should carefully read this prospectus and any
supplement before you invest in any of our securities.
We may offer and sell the following securities:
- debt securities, in one or more series, consisting of notes, debentures
or other evidences of indebtedness;
- preferred stock;
- common stock; and
- warrants.
Our common stock is traded on the New York Stock Exchange under the
symbol "ARW." Any common stock sold pursuant to this prospectus or any
prospectus supplement will be listed on that exchange, subject to official
notice of issuance. The prospectus supplement will state whether any other
securities offered thereby will be listed on a securities exchange.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY
OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this prospectus is , 2001.
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41
TABLE OF CONTENTS
About This Prospectus.................................................................................... 2
Where You Can Find More Information...................................................................... 2
Forward Looking Statements............................................................................... 3
Arrow Electronics, Inc................................................................................... 4
Use Of Proceeds.......................................................................................... 4
Consolidated Ratios Of Earnings To Fixed Charges......................................................... 4
Description Of Debt Securities........................................................................... 5
Description Of Capital Stock............................................................................. 24
Description Of Warrants.................................................................................. 26
Plan Of Distribution..................................................................................... 27
Validity Of Securities................................................................................... 28
Experts.................................................................................................. 28
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ABOUT THIS PROSPECTUS
This prospectus is part of a "shelf" registration statement that we
filed with the United States Securities and Exchange Commission, or the "SEC."
By using a shelf registration statement, we may sell up to $2,000,000,000 in
aggregate offering price of any combination of the securities described in this
prospectus (or in the other prospectus included in the shelf registration
statement) from time to time and in one or more offerings. This prospectus only
provides you with a general description of the securities that we may offer.
Each time we sell securities, we will provide a supplement to this prospectus
that contains specific information about the terms of the securities. The
supplement may also add, update or change information contained in this
prospectus. Before purchasing any securities, you should carefully read both
this prospectus and any supplement, together with the additional information
described under the heading "Where You Can Find More Information." Unless
otherwise indicated or unless the context requires otherwise, all references in
this prospectus to "Arrow", "we", "our", "us" or similar references mean Arrow
Electronics, Inc.
You should rely only on the information contained in this prospectus.
We have not authorized anyone to provide you with information different from
that contained in this prospectus. The information contained in this prospectus
and the supplement to this prospectus is accurate only as of the dates of their
respective covers, regardless of the time of delivery of this prospectus or any
supplement to this prospectus or of any sale of our securities.
No action is being taken in any jurisdiction outside the United States
to permit a public offering of the securities or possession or distribution of
this prospectus or any supplement to this prospectus in that jurisdiction.
Persons who come into possession of this prospectus or any supplement to this
prospectus in jurisdictions outside the United States are required to inform
themselves about and to observe any restrictions as to this offering and the
distribution of this prospectus or any supplement to this prospectus applicable
to that jurisdiction.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and
other documents with the Securities and Exchange Commission under the Securities
Exchange Act of 1934.
You may read and copy any document we file at the SEC's public
reference room, 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference room. Our
SEC filings are also available to the public on the SEC's Web site at
http://www.sec.gov and through the New York Stock Exchange, 20 Broad Street, New
York, New York 10005, on which our common stock is listed.
You may obtain a copy of any of our filings with the SEC, or any of the
agreements or other documents that constitute exhibits to those filings, without
charge, by request directed to us at the following address and telephone number:
Arrow Electronics, Inc.
25 Hub Drive
Melville, New York 11747
(516) 391-1300
Attention: Secretary
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The SEC allows us to "incorporate by reference" in this prospectus
reports that we file with them, which means that we can disclose important
information to you by referring you to those reports. Accordingly, we are
incorporating by reference in this prospectus the documents listed below and any
future filings we make with the SEC under Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934:
(1) Our Annual Report on Form 10-K for the year ended December 31,
1999;
(2) Our Quarterly Reports on Form 10-Q for the quarters ended
March 31, 2000, June 30, 2000 and September 30, 2000;
(3) Our Current Reports on Form 8-K dated September 1, 2000,
September 19, 2000 and December 22, 2000; and
(4) The description of our common stock set forth on our
registration statement filed with the Securities and Exchange
Commission pursuant to Section 12 of the Exchange Act,
including any amendments or reports filed for the purpose of
updating such description.
The information incorporated by reference is deemed to be part of this
prospectus, except for any information superseded by information contained
directly in this prospectus. Any information that we file later with the SEC
will automatically update and supersede this information.
This prospectus constitutes a part of a registration statement on Form
S-3 filed by us with the SEC under the Securities Act of 1933. This prospectus
does not contain all the information that is contained in the registration
statement, some of which we are allowed to omit in accordance with the rules and
regulations of the SEC. We refer you to the registration statement and to the
exhibits filed with the registration statement for further information with
respect to Arrow. Copies of the registration statement and the exhibits to the
registration statement are on file at the offices of the SEC and may be obtained
upon payment of the prescribed fee or may be examined without charge at the
public reference facilities of the SEC described above. Statements contained in
this prospectus concerning the provisions of documents are summaries of the
material provisions of those documents, and each of those statements is
qualified in its entirety by reference to the copy of the applicable document
filed with the SEC. Since this prospectus may not contain all of the information
that you may find important, you should review the full text of these documents.
FORWARD LOOKING STATEMENTS
This prospectus includes forward-looking statements that are subject to
certain risks and uncertainties which could cause actual results or facts to
differ materially from the statements in this prospectus for a variety of
reasons, including, but not limited to: industry conditions, changes in product
supply, pricing, and customer demand, competition, other vagaries in the
electronic components and commercial computer products markets, and changes in
relationships with key suppliers. Forward-looking statements are those
statements which are not statements of historical fact. You can identify these
forward-looking statements by forward-looking words such as "expects,"
"anticipates," "intends," "plans," "may," "will," "believes," "seeks,"
"estimates," and similar expressions. You are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date on
which they are made. We undertake no obligation to update publicly or revise any
of the forward-looking statements.
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ARROW ELECTRONICS, INC.
We are the world's largest distributor of electronic components and
computer products to industrial and commercial customers. We believe we are one
of the global electronics distribution industry's leaders in state-of-the-art
operating systems, employee productivity, value-added programs, and total
quality assurance. We are a leading distributor for over 600 suppliers.
Our distribution network spans the world's three dominant electronics
markets: North America, Europe, and the Asia/Pacific region. Through our
business units in these vital industrialized regions, we serve a diversified
base of original equipment manufacturers and commercial customers worldwide.
Original equipment manufacturers, or OEMs, include manufacturers of computer and
office products, industrial equipment (including machine tools, factory
automation, and robotic equipment), telecommunications products, aircraft and
aerospace equipment, and scientific and medical devices. Commercial customers
are mainly value-added resellers of computer systems. Through a network of more
than 225 sales facilities and 19 distribution centers in 38 countries, we
deliver to more than 175,000 OEMs and commercial customers the products,
inventory solutions, materials management services, and design and technical
support they need when, where and how they need them.
USE OF PROCEEDS
Except as otherwise described in the prospectus supplement relating to
an offering of securities, the net proceeds from the sale of securities offered
pursuant to this prospectus and any prospectus supplement will be used for
general corporate purposes.
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth our historical ratios of earnings to
fixed charges and our consolidated subsidiaries for the periods indicated:
NINE MONTHS ENDED
SEPTEMBER 30, 2000 YEAR ENDED DECEMBER 31,
------------------ -----------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Ratio of Earnings
to Fixed Charges............... 4.6 2.9(a) 4.0 5.0(b) 8.6 7.7
------------------------
(a) Excluding the special pre-tax charge of $25 million associated with the
acquisition and integration of Richey Electronics, Inc. and the
electronics distribution group of Bell Industries, Inc., the ratio of
earnings to fixed charges would have been 3.1.
(b) Excluding special pre-tax charges totaling $59 million associated with
the realignment of our North American components operations and the
acquisition and integration of the volume electronic component
distribution businesses of Premier Farnell plc, the ratio of earnings
to fixed charges would have been 5.7.
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DESCRIPTION OF DEBT SECURITIES
We have described below the general terms and provisions of the debt
securities to which a prospectus supplement may relate. We will describe the
particular terms of the debt securities offered by any prospectus supplement in
the prospectus supplement relating to the offered debt securities.
We may from time to time offer and sell debt securities, consisting of
debentures, notes and/or other unsecured evidences of indebtedness. The debt
securities will be either our unsecured senior debt securities or our unsecured
subordinated debt securities.
We will issue senior debt securities under an indenture, called the
"senior indenture", between us and The Bank of New York (as successor to Bank of
Montreal Trust Company), as trustee, in such capacity, called the "senior
trustee". We may also issue subordinated debt securities under a proposed
indenture, called the "subordinated indenture", between us and a trustee to be
named in any prospectus supplement relating to the subordinated debt securities,
called the "subordinated trustee". In this prospectus, we refer to the senior
indenture and the subordinated indenture together as the "indentures", to the
senior debt securities and the subordinated debt securities together as the
"debt securities" and to the senior trustee and the subordinated trustee
together as the "trustees". Unless otherwise indicated, section references in
this prospectus or in an accompanying prospectus supplement are to the relevant
provisions of both the senior indenture and the subordinated indenture. The
following summary of important provisions of the debt securities and the
indentures does not purport to be complete. This summary is subject to the
detailed provisions of the indentures, including the definition of certain
terms used in this prospectus and those terms made a part of the indentures by
reference to the Trust Indenture Act and the debt securities. Wherever
particular sections or defined terms of the indentures are referred to, those
sections or defined terms are incorporated by reference in this prospectus as
part of the statement made, and the statement is qualified in its entirety by
such reference. Numerical references in parentheses below are to sections in
the indentures. Capitalized terms that are used and not otherwise defined in
this prospectus will have the meanings assigned to them in the indentures.
GENERAL
The indentures provide for the issuance from time to time of
debentures, notes or other evidences of indebtedness by us in an unlimited
amount pursuant to a supplemental indenture, a board resolution, or an officer's
certificate pursuant to a supplemental indenture or board resolution. (Section
2.3)
Under each indenture, we may issue debt securities in one or more
series with the same or various maturities, at par, at a premium or with an
original issue discount. The applicable prospectus supplement relating to a
particular series of debt securities will describe the specific terms of the
debt securities we may offer, including:
(a) the designation of the debt securities of a particular series,
which will distinguish the debt securities of that series from
the debt securities of all other series;
(b) any limit upon the aggregate principal amount of the debt
securities of that series that may be authenticated and
delivered under the indentures and any limitation on our
ability to increase the aggregate principal amount after the
initial issuance of the debt securities of that series;
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(c) the date or dates on which the principal of the debt
securities of that series is payable (which date or dates may
be fixed or extendible);
(d) the rate or rates (which may be fixed or variable) per year at
which the debt securities of that series will bear interest,
if any;
(e) the date or dates from which interest will accrue, on which
interest will be payable and (in the case of registered
securities (which is defined as any debt security registered
on the security register)) on which a record will be taken for
the determination of holders to whom interest is payable
and/or the method by which such rate or rates or date or dates
will be determined;
(f) if other than as provided in the indentures, the place or
places where (1) the principal of and any interest on debt
securities will be payable, (2) any registered securities may
be surrendered for exchange, (3) notices, demands to or upon
us in respect of the debt securities of that series or the
indentures may be served and (4) notice to holders may be
published;
(g) our right, if any, to redeem debt securities of that series,
in whole or in part, at our option and the period or periods
within which, the price or prices at which and any terms and
conditions upon which debt securities of that series may be
redeemed pursuant to any sinking fund or otherwise;
(h) our obligation, if any, to redeem, purchase or repay debt
securities of that series pursuant to any mandatory
redemption, sinking fund or analogous provisions or at the
option of a holder and the price or prices at which and the
period or periods within which and any of the terms and
conditions upon which debt securities of that series will be
redeemed, purchased or repaid, in whole or in part, pursuant
to our redemption obligation;
(i) if other than denominations of $1,000 and any integral
multiple of $1,000, the denominations in which debt securities
of that series will be issuable;
(j) if other than the principal amount of the debt securities, the
portion of the principal amount of debt securities of that
series which will be payable upon acceleration of the maturity
of those securities;
(k) if other than the coin or currency in which the debt
securities of that series are denominated, the coin or
currency in which payment of the principal of or interest on
the debt securities of that series will be payable or if the
amount of payments of principal of and/or interest on the debt
securities of that series may be determined with reference to
an index based on a coin or currency other than that in which
the debt securities of that series are denominated, the manner
in which those amounts will be determined;
(l) if other than the currency of the United States of America,
the currency or currencies, including composite currencies, in
which payment of the principal of and interest on the debt
securities of that series will be payable, and the manner in
which any currencies will be valued against other currencies
in which any other debt securities will be payable;
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(m) whether the debt securities of that series or any portion
thereof will be issuable, with or without coupons, as
registered securities (and if so, whether those debt
securities will be issuable as registered global securities)
or unregistered securities (which is defined as any debt
security other than a registered security), or any combination
of the foregoing, any restrictions applicable to the offer,
sale or delivery of unregistered securities or the payment of
interest on those securities and, if other than as provided in
the indenture, the terms upon which unregistered securities of
any series may be exchanged for registered securities of that
series and vice versa;
(n) whether and under what circumstances we will pay additional
amounts on debt securities held by a person who is not a U.S.
person in respect of any tax, assessment or governmental
charge withheld or deducted and, if so, whether we will have
the option to redeem the securities rather than pay any
additional amounts;
(o) if the debt securities of that series are to be issuable in
definitive form (whether upon original issue or upon exchange
of a temporary debt security of that series) only upon receipt
of certain certificates or other documents or satisfaction of
other conditions, the form and terms of those certificates,
documents or conditions;
(p) any trustees, depositaries, authenticating or paying agents,
transfer agents or the registrar or any other agents with
respect to the debt securities of that series;
(q) provisions, if any, for the defeasance of the debt securities
of that series, including provisions permitting defeasance of
less than all the debt securities of that series, which
provisions may be in addition to, in substitution for, or in
modification of (or any combination of the foregoing) the
provisions of the indentures;
(r) if the debt securities of that series are issuable in whole or
in part as one or more registered global securities, the
identity of the depositary (if other than The Depository Trust
Company, or DTC) for that registered global security or
securities (which depositary will, at the time of its
designation as depositary and at all times while it serves as
depositary, be a clearing agency registered under the Exchange
Act and any other applicable statute or regulation);
(s) any other events of default or covenants with respect to the
debt securities of that series in addition to the events of
default or covenants set forth in the indentures;
(t) any other terms of the debt securities of that series, which
terms will not be inconsistent with the provisions of the
indentures.
Neither indenture contains any restriction on the payment of dividends or
any financial covenants. Neither indenture contains provisions which would
afford you protection in the event of a transfer of assets to a subsidiary and
incurrence of unsecured debt by such subsidiary, or in the event of a decline in
our credit quality resulting from highly leveraged or other similar transactions
involving us.
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The debt securities will be unsubordinated obligations of ours and the
senior debt securities will rank equal in right of payment with all of our
existing and future unsecured and unsubordinated obligations. The indebtedness
represented by the subordinated debt securities will be subordinated in right of
payment to the prior payment in full of our senior debt, as described below
under "Subordination". Claims of holders of the debt securities will be
effectively subordinated to the claims of holders of the debt of our
subsidiaries with respect to the assets of our subsidiaries. In addition, claims
of holders of the debt securities will be effectively subordinated to the claims
of holders of our secured debt and the secured debt of our subsidiaries with
respect to the collateral securing those claims. Our claims as the holder of
general unsecured intercompany debt will be similarly effectively subordinated
to claims of holders of secured debt of our subsidiaries.
SUBORDINATION
If we issue subordinated debt securities, our obligations to make any
payment of the principal of and premium, if any, and interest on, any
subordinated debt securities to be issued will be subordinate and junior in
right of payment to the prior payment in full of all of our senior indebtedness,
whether outstanding on the date of the subordinated indenture or thereafter
incurred. (article 10 of subordinated indenture)
We may not pay the principal of or interest or premium on the
subordinated debt securities if (i) we fail to make any of such payments on any
senior indebtedness (other than trade accounts payable) which has matured by
lapse of time, acceleration or otherwise, or (ii) a default occurs on the senior
indebtedness (other than trade accounts payable) that allows the holders of the
senior indebtedness to accelerate its maturity after lapse of time, the giving
of notice or both and that default continues.
If any payment or distribution of our assets occurs upon our
dissolution, winding-up, liquidation or reorganization, we may not pay the
principal of or interest or premium on the subordinated debt securities until we
have made such payments in full to the holders of all senior indebtedness. If
such dissolution, winding-up, liquidation or reorganization occurs and the
holders of the subordinated debt securities receive a payment or distribution,
then they must turn that payment or distribution over to the holders of the
senior indebtedness or a trustee for the benefit of the senior indebtedness
holders. Because of this subordination, if an insolvency occurs, holders of the
subordinated debt securities may recover less, proportionately, than holders of
senior debt and our general unsecured creditors.
CONVERSION
The terms, if any, on which debt securities are convertible into our
common stock will be set forth in the prospectus supplement for that series of
debt securities. These terms will include:
- the conversion price,
- the conversion period,
- provision as to whether conversion will be at our option or at
the option of the holder,
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- the events requiring an adjustment of the conversion price,
and
- provisions affecting conversion in the event of the redemption
of such series of debt securities.
REGISTERED GLOBAL SECURITIES
Unless otherwise specified in the applicable prospectus supplement, DTC
will act as securities depositary for the debt securities. The debt securities
will be issued only as registered global securities registered in the name of
DTC's nominee, which we expect will be Cede & Co. We will issue one or more
registered global securities for the debt securities representing the aggregate
principal amount of that series of debt securities and will deposit the
registered global securities with DTC.
The description of book-entry procedures in this prospectus includes
summaries of certain rules and operating procedures of DTC that affect transfers
of interests in the registered global securities issued in connection with sales
of debt securities made pursuant to this prospectus. The descriptions of the
operations and procedures of DTC that follow are provided solely as a matter of
convenience. These operations and procedures are solely within the control of
the DTC settlement system and are subject to change from time to time.
We understand that DTC is a limited-purpose trust company organized
under the New York Banking Law, a "banking organization" within the meaning of
the New York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act.
DTC holds securities that its participants (the "direct participants")
deposit with DTC. DTC also facilitates the settlement among direct participants
of securities transactions, such as transfers and pledges, in deposited
securities through electronic computerized book-entry changes in direct
participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Access to DTC's system is also available to others such as
securities brokers and dealers, banks and trust companies that clear through or
maintain a custodial relationship with a direct participant, either directly or
indirectly (the "indirect participants," and together with the direct
participants, the "participants").
Purchases of securities within DTC's system must be made by or through
direct participants. The direct participants receive a credit for the securities
on DTC's records. The ownership interest of the actual purchaser of each
security (a "beneficial owner") is in turn recorded on the direct and indirect
participants' records. Beneficial owners will not receive written confirmation
from DTC of their purchase. However, beneficial owners are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the direct or indirect participant through
which the beneficial owner entered into the transaction. Transfers of ownership
interest in the securities are to be accomplished by entries made on the books
of participants acting on behalf of beneficial owners. Beneficial owners will
not receive certificates representing their ownership interest in debt
securities except in the event that use of the book-entry system for the debt
securities is discontinued.
To facilitate subsequent transfers of the debt securities, all
securities deposited by direct participants with DTC are registered in the name
of a nominee of DTC. The deposit of debt securities with DTC and their
registration in the name of the nominee do not change the
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beneficial ownership of the securities. DTC has no knowledge of the actual
beneficial owners of the debt securities. DTC's records reflect only the
identity of the direct participants to whose accounts the debt securities are
credited. The participants will remain responsible for keeping account of their
holdings on behalf of their customers.
As long as DTC or its nominee is the registered holder of the
registered global security, DTC or its nominee will be considered the sole owner
and holder of the debt securities represented by the registered global security
for all purposes under the indenture and the debt securities. Except in limited
circumstances, beneficial owners will not be entitled to have any portions of
the registered global security registered in their names, will not receive or be
entitled to receive physical delivery of debt securities in definitive form and
will not be considered the owners or holders of the registered global security
(or any debt securities represented thereby) under the indenture or the debt
securities.
The laws of some states require that certain persons take physical
delivery in definitive form of securities that they own. Consequently, the
ability to transfer beneficial interests in a registered global security to
those persons may be limited. Because DTC can act only on behalf of its
participants, which in turn act on behalf of indirect participants and certain
banks, the ability of a beneficial owner to pledge their interest to persons or
entities that do not participate in the DTC system, or otherwise take actions in
respect of their interests, may be affected by the lack of a physical
certificate evidencing their interests.
DTC will send notices and other communications to its direct
participants; direct participants will send these communications to indirect
participants. The direct participants and indirect participants will send
notices and other communications to beneficial owners pursuant to arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
We will send any redemption notices to the nominee of DTC. If less than
all of the debt securities of a particular series are being redeemed, DTC will
determine in accordance with its procedures the amount of the interest of each
direct participant in the particular series to be redeemed.
Neither DTC nor its nominee will consent or vote with respect to any
debt securities. Under its usual procedures, DTC mails an omnibus proxy to its
direct participants as soon as possible after the applicable record date. The
omnibus proxy assigns the nominee's consenting or voting rights to those direct
participants to whose accounts the applicable securities are credited on the
record date (identified in a listing attached to the omnibus proxy).
Principal, premium, if any, and interest payments on the debt
securities will be made to DTC or its nominee. We expect that DTC will credit
direct participants' accounts on the relevant payment date upon DTC's receipt of
funds in accordance with the respective holdings shown on DTC's records. We
expect that payments by participants to beneficial owners will be governed by
standing instructions and customary practices, as is the case with securities
for the accounts of customers in bearer form or registered in "street-name".
These payments will be the responsibility of the participant and not of DTC, any
underwriters, or us, subject to any statutory or regulatory requirements as may
be in effect from time to time. Payment of distributions and other amounts to
DTC is the responsibility of the trustee. DTC is responsible for disbursing
those payments to the direct participants. The direct and indirect participants
are responsible for disbursing payments to the beneficial owners. We will not
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial ownership
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interests in the registered global security or for maintaining, supervising or
reviewing any records relating to those beneficial ownership interests.
Interests in the registered global security will trade in DTC's
Same-Day Funds Settlement System and secondary market trading activity in such
interests will therefore settle in immediately available funds, subject in all
cases to the rules and procedures of DTC and its participants. Transfers between
participants in DTC will be effected in accordance with DTC's procedures, and
will be settled in same-day funds.
DTC may discontinue providing its services as securities depositary
with respect to the debt securities at any time by giving reasonable notice to
us and the trustee. In the event that a successor securities depositary is not
obtained, definitive debt securities certificates representing the debt
securities will be required to be printed and delivered.
We will not have any responsibility or obligation to participants or
the persons for whom they act as nominees with respect to the accuracy of the
records of DTC, its nominee or any participant with respect to any ownership
interest in the debt securities, or with respect to payments to or providing of
notice for the participants or the beneficial owners.
So long as DTC's nominee is the registered owner of the debt
securities, references herein to a holder of the debt securities means DTC or
its nominee and not the beneficial owners of the debt securities.
The information in this section concerning DTC and DTC's book-entry
system has been obtained from DTC. Neither we, the trustees nor the
underwriters, dealers or agents, if any, take responsibility for the accuracy or
completeness of this description.
CERTAIN COVENANTS
Except as specified below or in the applicable prospectus supplement,
the following covenants apply to all series of senior debt securities.
RESTRICTIONS ON LIENS. The senior indenture provides that we will not,
and will not permit any Restricted Subsidiary to, create or incur any Lien on
any shares of stock, indebtedness or other obligations of a Restricted
Subsidiary or any Principal Property of ours or of a Restricted Subsidiary,
whether those shares of stock, indebtedness or other obligations of a Restricted
Subsidiary or Principal Property are owned at the date of such indenture or
acquired afterwards, unless we secure or cause the applicable Restricted
Subsidiary to secure the outstanding debt securities equally and ratably with
(or, at our option, prior to) all indebtedness secured by the particular Lien,
so long as the indebtedness is so secured. This covenant does not apply in the
case of:
(a) the creation of any Lien on any shares of stock, indebtedness
or other obligations of a Subsidiary or any Principal Property
acquired after the date of such indenture (including
acquisitions by way of merger or consolidation) by us or a
Restricted Subsidiary, contemporaneously with that
acquisition, or within 180 days thereafter, to secure or
provide for the payment or financing of any part of the
purchase price, or the assumption of any Lien upon any shares
of stock, indebtedness or other obligations of a Subsidiary or
any Principal Property acquired after the date of such
indenture existing at the time of the acquisition, or the
acquisition of any shares of stock, indebtedness or other
obligations of a Subsidiary or any Principal Property subject
to any Lien without the assumption
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of that Lien, provided that every Lien referred to in this
clause will attach only to the shares of stock, indebtedness
or other obligations of a Subsidiary or any Principal Property
so acquired and fixed improvements on that Principal Property;
(b) any Lien on any shares of stock, indebtedness or other
obligations of a Subsidiary or any Principal Property existing
on the date of such indenture;
(c) any Lien on any shares of stock, indebtedness or other
obligations of a Subsidiary or any Principal Property in favor
of us or any Restricted Subsidiary;
(d) any Lien on any Principal Property being constructed or
improved securing loans to finance the construction or
improvements of that property;
(e) any Lien on shares of stock, indebtedness or other obligations
of a Subsidiary or any Principal Property incurred in
connection with the issuance of tax-exempt governmental
obligations, including, without limitation, industrial revenue
bonds and similar financings;
(f) any mechanics', materialmen's, carriers' or other similar
Liens arising in the ordinary course of business with respect
to obligations that are not yet due or that are being
contested in good faith;
(g) any Lien on any shares of stock, indebtedness or other
obligations of a Subsidiary or any Principal Property for
taxes, assessments or governmental charges or levies not yet
delinquent, or already delinquent but the validity of which is
being contested in good faith;
(h) any Lien on any shares of stock, indebtedness or other
obligations of a Subsidiary or any Principal Property arising
in connection with legal proceedings being contested in good
faith, including any judgment Lien so long as execution on the
Lien is stayed;
(i) any landlord's Lien on fixtures located on premises leased by
us or a Restricted Subsidiary in the ordinary course of
business, and tenants' rights under leases, easements and
similar Liens not materially impairing the use or value of the
property involved;
(j) any Lien arising by reason of deposits necessary to qualify us
or any Restricted Subsidiary to conduct business, maintain
self-insurance, or obtain the benefit of, or comply with, any
law;
(k) Liens on our current assets to secure loans to us that mature
within twelve months from their creation and that are made in
the ordinary course of business; and
(l) any renewal of or substitution for any Lien permitted by any
of the preceding clauses, provided, in the case of a Lien
permitted under clauses (a), (b) or (d), the indebtedness
secured is not increased nor the Lien extended to any
additional assets. (Section 4.3(a) of senior indenture)
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Notwithstanding the foregoing, we or any Restricted Subsidiary may
create or assume Liens in addition to those permitted by the preceding sentence
of this paragraph, and renew, extend or replace those Liens, provided that at
the time of and after giving effect to the creation, assumption, renewal,
extension or replacement, Exempted Debt does not exceed 15 percent of
Consolidated Net Tangible Assets. (Section 4.3(b) of senior indenture)
RESTRICTIONS ON SALE AND LEASE-BACK TRANSACTIONS. The senior indenture
provides that we will not, and will not permit any Restricted Subsidiary to,
sell or transfer, directly or indirectly, except to us or to a Restricted
Subsidiary, any Principal Property as an entirety, or any substantial portion of
that Principal Property, with the intention of taking back a lease of such
property, except a lease for a period of three years or less at the end of which
it is intended that the use of that property by the lessee will be discontinued.
Notwithstanding the foregoing, we or any Restricted Subsidiary may sell any
Principal Property and lease it back for a longer period:
(a) if we or such applicable Restricted Subsidiary would be entitled,
pursuant to the provisions of Section 4.3(a) of the senior indenture, to
create a Lien on the property to be leased securing Funded Debt in an amount
equal to the Attributable Debt with respect to the sale and lease-back
transaction without equally and ratably securing the outstanding debt
securities; or
(b) if we promptly inform the trustee of the transaction, and we cause
an amount equal to the fair value (as determined by resolution of our board
of directors) of the property to be applied (1) to the purchase of other
property that will constitute Principal Property having a fair value at
least equal to the fair value of the property sold, or (2) to the retirement
within 120 days after receipt of the proceeds of Funded Debt incurred or
assumed by us or a Restricted Subsidiary, including the senior debt
securities;
provided, further that, in lieu of applying all of or any part of such net
proceeds to such retirement, we may, within 75 days after the sale, deliver or
cause to be delivered to the applicable trustee for cancellation either
debentures or debt securities evidencing Funded Debt of ours (which may include
the senior debt securities) or of a Restricted Subsidiary previously
authenticated and delivered by the applicable trustee, and not yet tendered for
sinking fund purposes or called for a sinking fund or otherwise applied as a
credit against an obligation to redeem or retire such debt securities or
debentures, and an officer's certificate (which will be delivered to the
trustee) stating that we elect to deliver or cause to be delivered the
debentures or debt securities in lieu of retiring Funded Debt as provided in
such indenture.
If we deliver debentures or debt securities to the trustee and we duly
deliver the officer's certificate, the amount of cash that we will be required
to apply to the retirement of Funded Debt under this provision of the senior
indenture will be reduced by an amount equal to the aggregate of the then
applicable optional redemption prices (not including any optional sinking fund
redemption prices) of the applicable debentures or debt securities, or, if there
are no such redemption prices, the principal amount of those debentures or debt
securities. If the applicable debentures or debt securities provide for an
amount less than the principal amount to be due and payable upon a declaration
of the maturity, then the amount of cash will be reduced by the amount of
principal of those debentures or debt securities that would be due and payable
as of the date of the application upon a declaration of acceleration of the
maturity pursuant to the terms of the indenture pursuant to which those
debentures or debt securities were issued. (Section 4.4(a) of senior
indenture)
Notwithstanding the foregoing, we or any Restricted Subsidiary may
enter into sale and lease-back transactions in addition to those permitted by
this paragraph, without any obligation
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to retire any outstanding debt securities or other Funded Debt, provided that at
the time of entering into and giving effect to such sale and lease-back
transactions, Exempted Debt does not exceed 15 percent of Consolidated Net
Tangible Assets. (Section 4.4(b) of senior indenture)
CERTAIN DEFINITIONS
The term "Attributable Debt" as defined in the senior indenture means
when used in connection with a sale and leaseback transaction referred to above
under " - Certain Covenants - Restrictions on Sale and Lease-Back Transactions,"
on any date as of which the amount of Attributable Debt is to be determined, the
product of (a) the net proceeds from the sale and lease-back transaction
multiplied by (b) a fraction, the numerator of which is the number of full years
of the term of the lease relating to the property involved in the sale and
lease-back transaction (without regard to any options to renew or extend such
term) remaining on the date of the making of the computation, and the
denominator of which is the number of full years of the term of the lease
measured from the first day of the term.
The term "Consolidated Net Tangible Assets" as defined in the
senior indenture means total assets after deducting all current liabilities
and intangible assets as set forth in our most recent balance sheet and our
consolidated Subsidiaries and computed in accordance with GAAP.
The term "Exempted Debt" as defined in the senior indenture means
the sum, without duplication, of the following items outstanding as of the date
Exempted Debt is being determined:
(a) indebtedness of ours and our Restricted Subsidiaries incurred after
the date of such indenture and secured by liens created or assumed or
permitted to exist pursuant to Section 4.3(b) of such indenture described
above under " - Certain Covenants - Restrictions on Liens"; and
(b) Attributable Debt of ours and our Restricted Subsidiaries in
respect of all sale and lease-back transactions with regard to any Principal
Property entered into pursuant to Section 4.4(b) of such indenture described
above under " - Certain Covenants - Restrictions on Sales and Lease-Back
Transactions".
The term "Funded Debt" as defined in the senior indenture means all
indebtedness for money borrowed, including purchase money indebtedness, having a
maturity of more than one year from the date of its creation or having a
maturity of less than one year but by its terms being renewable or extendible at
the option of the obligor, beyond one year from the date of its creation.
The terms "Holder" or "Securityholder" as defined in the applicable
indenture mean the registered holder of any debt security with respect to
registered securities and the bearer of any unregistered security or any coupon
appertaining to it, as the case may be.
The term "Lien" as defined in the senior indenture means, with respect
to any asset, any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind, or any other type of preferential arrangement that has
the practical effect of creating a security interest in respect of such asset.
For the purposes of such indenture, we or any Subsidiary will be deemed to own,
subject to a Lien, any asset that we have acquired or hold subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such asset.
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The term "Original Issue Discount Security" as defined in the
applicable indenture means any debt security that provides for an amount less
than the principal amount of a particular security to be due and payable upon a
declaration of acceleration of the maturity of that security pursuant to Section
6.2 of such indenture.
The term "Principal Property" as defined in the senior indenture means
any manufacturing or processing plant or warehouse owned at the date of such
indenture or acquired after that date by us or any of our Restricted
Subsidiaries which is located within the United States and the gross book value
of which (including related land and improvements and all machinery and
equipment without deduction of any depreciation reserves) on the date as of
which the determination is being made exceeds 2 percent of Consolidated Net
Tangible Assets, other than:
(a) any manufacturing or processing plant or warehouse or any portion
of the same (together with the land on which it is erected and fixtures that
are a part of that land) which is financed by industrial development bonds
which are tax exempt pursuant to Section 103 of the Internal Revenue Code
(or which receive similar tax treatment under any subsequent amendments or
any successor laws or under any other similar statute of the United States);
(b) any property which in the opinion of our board of directors is not
of material importance to the total business conducted by us as an entirety;
or
(c) any portion of a particular property which is similarly found not
to be of material importance to the use or operation of such property.
The term "Restricted Subsidiary" as defined in the applicable indenture
means a Subsidiary of ours (a) of which substantially all the property is
located, or substantially all the business is carried on, within the United
States, and (b) which owns Principal Property; provided, however, that any
Subsidiary may be declared a Restricted Subsidiary by board resolution,
effective as of the date such board resolution is adopted; provided further,
that any such declaration may be rescinded by further board resolution,
effective as of the date that further board resolution is adopted.
The term "Senior Indebtedness" as defined in the subordinated indenture
shall mean (a) the principal of, premium, if any, and interest on all
indebtedness, whether outstanding on the date of the subordinated indenture as
originally executed or thereafter created or incurred, unless, in the instrument
creating or evidencing the same or pursuant to which the same is outstanding, it
is provided that such indebtedness is not superior in right of payment to the
subordinated debt securities; and (b) any amendments, modifications, deferrals,
renewals or extensions of any such Senior Indebtedness, or debentures, notes or
other evidences of indebtedness issued in exchange for any such Senior
Indebtedness; provided, however, that Senior Indebtedness shall not be deemed to
include (i) indebtedness which constitutes subordinated indebtedness and (ii)
any other debt securities issued pursuant to the subordinated indenture.
The term "Subsidiary" as defined in the applicable indenture means,
with respect to any person, any corporation, association or other business
entity of which more than 50% of the outstanding Voting Stock is owned, directly
or indirectly, by that person and one or more other Subsidiaries of that person.
RESTRICTIONS ON MERGERS AND SALES OF ASSETS
Under each indenture, we may not consolidate with, merge with or into,
or sell, convey, transfer, lease or otherwise dispose of all or substantially
all of our property and assets (in one transaction or a series of related
transactions) to, any person (other than a consolidation with or merger with or
into a Subsidiary or a sale, conveyance, transfer, lease or other disposition to
a
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Subsidiary) or permit any person to merge with or into us unless (a) either (1)
we will be the continuing person or (2) the person (if other than ourselves)
formed by the consolidation or into which we are merged or that acquired or
leased such property and assets of ours will be a corporation organized and
validly existing under the laws of the United States of America or any of its
jurisdictions and will expressly assume, by a supplemental indenture, executed
and delivered to the trustee, all of our obligations on all of the debt
securities under such indenture, and we will have delivered to the trustee an
opinion of counsel stating that the consolidation, merger or transfer and the
supplemental indenture complies with such indenture and that all conditions
precedent provided for in such indenture relating to the transaction have been
complied with and that the supplemental indenture constitutes a legal, valid and
binding obligation of ours or the successor enforceable against such entity in
accordance with its terms, subject to customary exceptions; and (b) an officer's
certificate to the effect that immediately after giving effect to such
transaction, no default will have occurred and be continuing and an opinion of
counsel as to the matters set forth in clause (a) will have been delivered to
the trustee. (Section 5.1)
EVENTS OF DEFAULT
Events of default defined in the indentures with respect to the debt
securities of any series are:
(a) we default in the payment of the principal of any debt
securities of a series when the same becomes due and payable
at maturity, upon acceleration, redemption or mandatory
repurchase, including as a sinking fund installment, or
otherwise;
(b) we default in the payment of interest on any debt securities
of a series when the same becomes due and payable, and that
default continues for a period of 30 days;
(c) we default in the performance of or breach any other covenant
or agreement of ours in the applicable indenture with respect
to the debt securities of a series and that default or breach
continues for a period of 30 consecutive days (or, in the case
of the subordinated indenture, 60 consecutive days) after
written notice to us by the trustee or to us and the trustee
by the Holders of 25 percent or more in aggregate principal
amount of the debt securities of all series affected thereby;
(d) an involuntary case or other proceeding is commenced against
us or any Restricted Subsidiary with respect to our debts or
our Restricted Subsidiary's debts under any bankruptcy,
insolvency or other similar law now or in the future in effect
seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official relating to us or a
substantial part of our property, and the involuntary case or
other proceeding remains undismissed and unstayed for a period
of 60 days; or an order for relief is entered against us or
any Restricted Subsidiary under the federal bankruptcy laws as
now or in the future in effect;
(e) we or any Restricted Subsidiary (1) commence a voluntary case
under any applicable bankruptcy, insolvency or other similar
law now or in the future in effect, or consents to the entry
of an order for relief in an involuntary case under any such
law, (2) consent to the appointment of or taking possession by
a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of us or any Restricted
Subsidiary or for all or substantially all of our property and
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assets or any Restricted Subsidiary's property and assets or
(3) effect any general assignment for the benefit of
creditors; and
(f) any other event of default established with respect to any
series of debt securities issued pursuant to the applicable
indenture occurs. (Section 6.1)
The indentures provide that if an event of default described in clauses (a)
or (b) above, with respect to the debt securities of any series then
outstanding, occurs and is continuing, then, and in each and every such case,
except for any series of debt securities the principal of which has already
become due and payable, either the trustee or the Holders of not less than 25
percent in aggregate principal amount of the debt securities of any such
affected series then outstanding under the applicable indenture (each series
being treated as a separate class) by notice in writing to us (and to the
trustee if given by Securityholders), may declare the entire principal (or, if
the debt securities of any such series are Original Issue Discount Securities,
the applicable portion of the principal amount as may be specified in the terms
of the particular series established pursuant to that indenture) of all debt
securities of the affected series, and the interest accrued on that series, if
any, to be due and payable immediately, and upon any such declaration the same
will become immediately due and payable.
If an event of default described clauses (c) or (d) above, with respect
to the debt securities of one or more but not all series then outstanding, or
with respect to the debt securities of all series then outstanding, occurs and
is continuing, then, and in each and every such case, except for any series of
debt securities the principal of which has already become due and payable,
either the trustee or the Holders of not less than 25 percent in aggregate
principal amount (or, if the debt securities of any such series are Original
Issue Discount Securities, the amount of which is accelerable as described in
this paragraph) of the debt securities of all the affected series then
outstanding under the applicable indenture (treated as a single class) by notice
in writing to us (and to the trustee if given by Securityholders) may declare
the entire principal (or, if the debt securities of any such series are Original
Issue Discount Securities, such portion of the principal amount as may be
specified in the terms of that series) of all debt securities of all the
affected series, and the interest accrued on those series, if any, to be due and
payable immediately, and upon any such declaration the same will become
immediately due and payable.
If an event of default described in clauses (e) or (f) above occurs and
is continuing, then the principal amount (or, if any debt securities are
Original Issue Discount Securities, the portion of the principal as may be
specified in the terms of that series) of all the debt securities then
outstanding and interest accrued on those debt securities, if any, will be and
become immediately due and payable without any notice or other action by any
Holder or the trustee to the full extent permitted by applicable law. Upon
certain conditions such declarations may be rescinded and annulled and past
defaults may be waived by the Holders of a majority in principal of the then
outstanding debt securities of all series that have been accelerated, voting as
a single class. (Section 6.2)
TRUSTEE'S RIGHTS
The indentures contain a provision under which, subject to the duty of the
trustee during a default to act with the required standard of care:
(a) the trustee may rely and will be protected in acting or
refraining from acting upon any resolution, certificate,
officer's certificate, opinion of counsel, statement,
instrument, opinion, report, notice, request, direction,
consent, order, bond,
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debenture, note, other evidence or indebtedness or other paper
or document believed by it to be genuine and to have been
signed or presented by the proper person or persons, and the
trustee need not investigate any fact or matter stated in the
document, but the trustee, in its discretion, may make any
further inquiry or investigation into any facts or matters as
it may see fit;
(b) before the trustee acts or refrains from acting, it may
require an officer's certificate and/or an opinion of counsel,
which will conform to the requirements of the applicable
indenture, and the trustee will not be liable for any action
it takes or omits to take in good faith in reliance on that
certificate or opinion; subject to the terms of such
indenture, whenever in the administration of the trusts of
such indenture the trustee deems it necessary or desirable
that a matter be proved or established prior to taking or
suffering or omitting any action under the indenture, that
matter (unless other evidence in respect thereof be
specifically prescribed in such indenture) may, in the
absence of negligence or bad faith on the part of the
trustee, be deemed to be conclusively proved and established
by an officer's certificate delivered to the trustee, and
that certificate, in the absence of negligence or bad faith
on the part of the trustee, will be full warrant to the
trustee for any action taken, suffered or omitted by it under
the provisions of such indenture upon the faith of the
officer's certificate;
(c) the trustee may act through its attorneys and agents not
regularly in its employ and will not be responsible for the
misconduct or negligence of any agent or attorney appointed
with due care by it under the applicable indenture;
(d) any request, direction, order or demand of us mentioned in the
applicable indenture will be sufficiently evidenced by an
officer's certificate (unless other evidence is specifically
prescribed in such indenture); and any board resolution may
be evidenced to the trustee by a copy of the resolution
certified by our Secretary or an Assistant Secretary;
(e) the trustee will be under no obligation to exercise any of the
rights or powers vested in it by the applicable indenture at
the request, order or direction of any of the Holders, unless
the Holders have offered the trustee reasonable security or
indemnity against the costs, expenses and liabilities that
might be incurred by it in compliance with the request or
direction;
(f) the trustee will not be liable for any action it takes or
omits to take in good faith that it believes to be authorized
or within its rights or powers or for any action it takes or
omits to take in accordance with the direction of the Holders
in accordance with the applicable indenture relating to the
time, method and place of conducting any proceeding for any
remedy available to the trustee, or exercising any trust or
power conferred upon the trustee, under such indenture;
(g) the trustee may consult with counsel, and the written advice
of its counsel or any opinion of counsel will be full and
complete authorization and protection in respect of any action
taken, suffered or omitted by it under the applicable
indenture in good faith and in reliance on that opinion of
counsel; and
(h) prior to the occurrence of an event of default under each
indenture and after the curing or waiving of all events of
default, the trustee will not be bound to make
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any investigation into the facts or matters stated in any
resolution, certificate, officer's certificate, opinion of
counsel, board resolution, statement, instrument, opinion,
report, notice, request, consent, order, approval, appraisal,
bond, debenture, note, coupon, security, or other paper or
document, but the trustee, in its discretion, may make any
further inquiry or investigation into any facts or matters as
it may see fit and, if the trustee decides to make such
further inquiry or investigation, it will be entitled to
examine, during normal business hours and upon prior written
notice, our books, records and premises, personally or by
agent or attorney. (Section 7.2)
Subject to various provisions in the indentures, the Holders of at
least a majority in principal amount (or, if the debt securities are Original
Issue Discount Securities, such portion of the principal as is then accelerable
under the applicable indenture) of the applicable outstanding debt securities
of all series affected (voting as a single class) by notice to the trustee, may
waive, on behalf of the Holders of all the debt securities of that series, an
existing default or event of default with respect to such debt securities of
that series and its consequences, except a default in the payment of principal
of or interest on any debt security as specified in clauses of the "Events of
Default" section above or in respect of a covenant or provision of such
indenture which cannot be modified or amended without the consent of the Holder
of each outstanding debt security affected by the default. Upon any waiver, the
default will cease to exist, and any event of default with respect to the debt
securities of that series will be deemed to have been cured, for every purpose
of such indenture. However, no waiver will extend to any subsequent or other
default or event of default or impair any right in relation to any subsequent
or other default or event of default. (Section 6.4)
Subject to provisions in the indentures for the indemnification of the
trustee and certain other limitations, the Holders of at least a majority in
aggregate principal amount (or, if any debt securities are Original Issue
Discount Securities, the portion of the principal as is then accelerable under
the applicable indenture) of the applicable outstanding debt securities of all
series affected (voting as a single class), may direct the time, method and
place of conducting any proceeding for any remedy available to the trustee or
exercising any trust or power conferred on the trustee with respect to the debt
securities of such series by such indenture, provided that the trustee may
refuse to follow any direction that conflicts with law or such indenture
that may involve the trustee in personal liability, or that the trustee
determines in good faith may be unduly prejudicial to the rights of Holders not
joining in the giving of such direction; and provided, further that the trustee
may take any other action it deems proper that is not inconsistent with any
directions received from such Holders of debt securities pursuant to such
indenture. (Section 6.5)
The indentures provide that no Holder of any applicable debt securities
of any series may institute any proceeding, judicial or otherwise, with respect
to the applicable indenture or the debt securities of that series, or for the
appointment of a receiver or trustee, or for any other remedy under the
indentures, unless:
(a) such Holder has previously given to the trustee written notice
of a continuing event of default with respect to the debt
securities of that series;
(b) such Holders of at least 25 percent in aggregate principal
amount of applicable outstanding debt securities of the
affected series have made written request to the trustee to
institute proceedings in respect of the event of default in
its own name as trustee under such indenture;
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(c) the Holder or Holders have offered to the trustee indemnity
reasonably satisfactory to the trustee against any costs,
liabilities or expenses to be incurred in compliance with the
request;
(d) the trustee for 60 days after its receipt of the notice,
request and offer of indemnity has failed to institute any
such proceeding; and
(e) during the 60-day period, the Holders of a majority in
aggregate principal amount of the applicable outstanding debt
securities of the affected series have not given the trustee a
direction that is inconsistent with such written request. A
Holder may not use such indenture to prejudice the rights of
another Holder or to obtain a preference or priority
over any other Holder. (Section 6.6)
The indentures contain a covenant that we will file with the trustee,
within 15 days after we are required to file the same with the SEC, copies of
the annual reports and of the information, documents and other reports that we
may be required to file with the SEC pursuant to Section 13 or Section 15(d) of
the Exchange Act. (Section 4.6)
DISCHARGE, LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Each indenture provides with respect to each series of applicable
debt securities that, except as otherwise provided in this paragraph, we may
terminate our obligations under such debt securities of a series and the
applicable indenture with respect to debt securities of that series if:
(a) all debt securities of that series previously authenticated and
delivered, with certain exceptions, have been delivered to the trustee for
cancellation, and we have paid all sums payable by us under such
indenture with respect to that series; or
(b) (1) the debt securities of that series mature within one year or
all of them are to be called for redemption within one year under
arrangements satisfactory to the trustee for giving the notice of
redemption;
(2) we irrevocably deposit in trust with the trustee, as trust
funds solely for the benefit of the Holders of those debt securities, for that
purpose, money or U.S. Government obligations or a combination of money or U.S.
Government obligations sufficient (unless such funds consist solely of money, in
the opinion of a nationally recognized firm of independent public accountants
expressed in a written certification delivered to the trustee), without
consideration of any reinvestment, to pay principal of and interest on the debt
securities of that series to maturity or redemption, as the case may be, and to
pay all other sums payable by us under such indenture; and
(3) we deliver to the trustee an officer's certificate and an
opinion of counsel, in each case stating that all conditions precedent provided
for in such indenture relating to the satisfaction and discharge of such
indenture with respect to the debt securities of that series have been
complied with.
With respect to the foregoing clause (a), only our obligations to
compensate and indemnify the trustee will survive. With respect to the foregoing
clause (b), only our obligations to execute and deliver debt securities of that
series for authentication, to set the terms of the debt securities of that
series, to maintain an office or agency in respect of the debt securities of
that series, to have moneys held for payment in trust, to register the transfer
or exchange of debt securities of that series, to deliver debt securities of
that series for replacement or to be
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canceled, to compensate and indemnify the trustee and to appoint a successor
trustee, and our right to recover excess money held by the trustee will survive
until those debt securities are no longer outstanding. Thereafter, only our
obligations to compensate and indemnify the trustee and its right to recover
excess money held by the trustee will survive. (Section 8.1)
Each indenture provides that, except as otherwise provided in
this paragraph, we:
(a) will be deemed to have paid and will be discharged from any and all
obligation, in respect of the debt securities of any series, and the
provisions of such indenture will no longer be in effect with
respect to the debt securities of that series (a "legal defeasance"); and
(b) may omit to comply with any specific covenant relating to such
series provided for in a board resolution or supplemental indenture or
officer's certificate that may by its terms be defeased pursuant to the
indenture (or any term, provision or condition of the senior indenture
described under "-- Certain Covenants", in the case of the senior indenture)
and our omission will be deemed not to be an event of default under
clauses (c) and (d) under "Events of Default" above with respect to the
outstanding debt securities of a series (a "covenant defeasance");
provided that the following conditions will have been satisfied:
(a) we have irrevocably deposited in trust with the trustee as trust
funds solely for the benefit of the Holders of the debt securities of that
series, for payment of the principal of and interest on those debt
securities, money or U.S. Government obligations or a combination of the
foregoing sufficient (unless such funds consist solely of money, in the
opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the trustee)
without consideration of any reinvestment and after payment of all federal,
state and local taxes or other charges and assessments in respect of those
payments payable by the trustee, to pay and discharge the principal of and
accrued interest on the outstanding debt securities of such series to
maturity or earlier redemption (irrevocably provided for under arrangements
satisfactory to the trustee), as the case may be;
(b) our deposit will not result in a breach or violation of, or
constitute a default under, such indenture or any other material
agreement or instrument to which we are a party or by which we are bound;
(c) no default with respect to those debt securities will have occurred
and be continuing on the date of the deposit;
(d) we will have delivered to the trustee an opinion of counsel that
the Holders of the debt securities of that series have a valid security
interest in the trust funds subject to no prior liens under such Uniform
Commercial Code; and
(e) we will have delivered to the trustee an officer's certificate and
an opinion of counsel, in each case stating that all conditions precedent
provided for in such indenture relating to the defeasance contemplated
have been complied with.
In the case of a legal defeasance, we will have delivered to the
trustee an opinion of counsel (based on a change in law) or a ruling directed to
the trustee from the United States Internal Revenue Service that the Holders of
the debt securities of that series will not recognize income, gain or loss for
federal income tax purposes as a result of our exercise of our option
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under this provision of the applicable indenture and will be subject to federal
income tax on the same amount and in the same manner and at the same times as
could have been the case if the deposit and defeasance had not occurred, or an
instrument, in form reasonably satisfactory to the trustee, where we,
notwithstanding a legal defeasance of our indebtedness in respect of debt
securities of any series, or any portion of the principal amount thereof, will
assume the obligation which will be absolute and unconditional) to irrevocably
deposit with the trustee any additional sums of money or additional U.S.
Government obligations or any combination of money or U.S. Government
obligations, at such time or times as necessary, together with the money and/or
U.S. Government obligations so deposited, to pay when due the principal of and
premium, if any, and interest due and to become due on the applicable debt
securities; provided, however, that the instrument may state that our obligation
to make additional deposits as aforesaid will be subject to the delivery to us
by the trustee of a notice asserting the deficiency accompanied by an opinion of
an independent public accountant of nationally recognized standing selected by
the trustee, showing the applicable calculation.
Subsequent to a legal defeasance, our obligations to execute and
deliver debt securities of that series for authentication, to set the terms of
the debt securities of that series, to maintain an office or agency in respect
of the debt securities of that series, to have moneys held for payment in trust,
to register the transfer or exchange of debt securities of that series, to
deliver debt securities of that series for replacement or to be canceled, to
compensate and indemnify the trustee and to appoint a successor trustee, and our
right to recover excess money held by the trustee will survive until those debt
securities are no longer outstanding. After those debt securities are no longer
outstanding, in the case of a legal defeasance, only our obligations to
compensate and indemnify the trustee and our right to recover excess money held
by the trustee will survive. (Sections 8.2 and 8.3)
MODIFICATION OF THE INDENTURE
Each indenture provides that we and the trustee may amend or supplement
such indenture or the applicable debt securities of any series without notice to
or the consent of any Holder:
(a) to cure any ambiguity, defect or inconsistency in such
indenture, provided that such amendments or supplements
do not materially and adversely affect the interests of the
Holders;
(b) to comply with Article 5 (which relates to the covenant
discussed under " - Restrictions on Mergers and Sales of
Assets") of such indenture;
(c) to comply with any requirements of the SEC in connection with
the qualification of such indenture under the Trust
Indenture Act;
(d) to evidence and provide for the acceptance of appointment
under such indenture with respect to the debt securities
of any or all series by a successor trustee;
(e) to establish the form or forms or terms of debt securities of
any series or of the coupons appertaining to such debt
securities as permitted under such indenture;
(f) to provide for uncertificated or unregistered debt securities
and to make all appropriate changes for such purpose;
(g) to change or eliminate any provisions of such indenture
with respect to all or any series of the debt securities not
then outstanding (and, if the change is applicable
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to fewer than all those series of the applicable debt
securities, specifying the series to which the change is
applicable), and to specify the rights and remedies of the
trustee and the Holders of those debt securities; and
(h) to make any change that does not materially and adversely
affect the rights of any Holder. (Section 9.1)
Each indenture also contains provisions that allow us and the trustee,
subject to certain conditions, without prior notice to any Holders, to amend
such indenture and the outstanding debt securities of any series with the
written consent of the Holders of a majority in aggregate principal amount of
the applicable debt securities then outstanding of all series affected by such
supplemental indenture (all such series voting as one class). The Holders of a
majority in aggregate principal amount of the applicable outstanding debt
securities of all series affected (all such series voting as one class) by
written notice to the trustee may waive future compliance by us with any
provision of such indenture or the debt securities of that series.
Notwithstanding the foregoing provisions, without the consent of each applicable
Holder affected, an amendment or waiver, including a waiver pursuant to Section
6.4 of such indenture, may not:
(a) extend the stated maturity of the principal of, or any sinking
fund obligation or any installment of interest on, the
Holder's debt security or reduce the principal amount or the
rate of interest of that debt security (including any amount
in respect of original issue discount), or any premium payable
with respect to that debt security, or adversely affect the
rights of that Holder under any mandatory redemption or
repurchase provision or any right of redemption or repurchase
at the option of that Holder, or reduce the amount of the
principal of an Original Issue Discount Security that would be
due and payable upon the acceleration of the maturity of that
debt security or any amount provable in bankruptcy, or change
any place of payment where, or the currency in which, any debt
security or any premium or the interest on that debt security
is payable, or impair the right to institute suit for the
enforcement of any payment on or after the due date of that
payment;
(b) reduce the percentage in principal amount of outstanding debt
securities of the relevant series the consent of whose Holders
is required for any supplemental indenture or for any waiver
of compliance with certain provisions of such indenture or
certain defaults and their consequences provided for therein;
(c) waive a default in the payment of principal of or interest on
any applicable debt security of a Holder; or
(d) modify any of the provisions of such indenture governing
supplemental indentures with the consent of Securityholders,
except to increase the percentage or to provide that certain
other provisions of such indenture cannot be modified or
waived without the consent of the Holder of each outstanding
debt security affected by the modification.
A supplemental indenture which changes or eliminates any covenant or
other provision of the applicable indenture which has expressly been included
solely for the benefit of one or more particular series of debt securities, or
which modifies the rights of Holders of applicable debt securities of that
series with respect to that covenant or provision, will be deemed not to affect
the rights under such indenture of the Holders of debt securities of any
other series or of the coupons
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appertaining to those debt securities. It will not be necessary for the consent
of any Holder under such indenture to approve the particular form of any
proposed amendment, supplement or waiver, but it will be sufficient if the
consent approves the substance of the amendment, supplement or waiver. After an
amendment, supplement or waiver under such indenture becomes effective, we or,
at our request, the trustee will give to the affected Holders a notice briefly
describing the amendment, supplement or waiver. We or, at our request, the
trustee will mail supplemental indentures to Holders upon request. Any failure
of us to mail such notice, or any defect in the notice, will not, however, in
any way impair or affect the validity of any supplemental indenture or waiver.
(Section 9.2)
INFORMATION CONCERNING THE TRUSTEE
An affiliate of The Bank of New York participates as a lender under
certain of our credit agreements.
DESCRIPTION OF CAPITAL STOCK
We have authority to issue 160,000,000 shares of common stock, par
value $1.00 per share and 2,000,000 shares of preferred stock, par value $1.00
per share. As of September 30, 2000, we had outstanding 103,741,595 shares of
common stock and no shares of preferred stock. Our board of directors has
authority, without action by our shareholders, to issue authorized and unissued
shares of preferred stock in one or more series and, within certain
limitations, to determine the voting rights (including the right to vote as a
series on particular matters), preference as to dividends and in liquidation,
conversion, redemption and other rights of each series.
The following is a brief summary of the voting, dividend, liquidation
and certain other rights of the holders of the capital stock as set forth in our
by-laws and Restated Certificate of Incorporation, copies of which are filed
with the Commission.
COMMON STOCK
Voting Rights-Noncumulative Voting. The holders of common stock are
entitled to one vote per share on all matters to be voted on by shareholders,
including the election of directors. Shareholders are not entitled to cumulative
voting rights, and, accordingly, the holders of a majority of the shares voting
for the election of directors can elect the entire board of directors if they
choose to do so and, in that event, the holders of the remaining shares will not
be able to elect any person to the board of directors.
Our Restated Certificate of Incorporation requires the affirmative vote
of 90% of our outstanding shares of common stock to authorize certain mergers,
sales of assets, corporate reorganizations and other transactions in the event
that any person or entity acquires 30% or more of our outstanding common stock.
Dividends; Restriction on Payment of Dividends. The holders of common
stock are entitled to receive such dividends, if any, as may be declared from
time to time by our board of directors, in its discretion, from funds legally
available for the purpose and subject to prior dividend rights of holders of any
shares of preferred stock which may be outstanding. Upon liquidation or
dissolution of Arrow, subject to prior liquidation rights of the holders of
preferred stock, the holders of common stock are entitled to receive on a pro
rata basis the remaining assets of Arrow available for distribution. Holders of
common stock have no preemptive or other subscription rights, and there are no
conversion rights or redemption or sinking fund provisions
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with respect to our common stock.
In addition, the terms of our second amended and restated credit
agreement, as amended, and our amended and restated 364-day credit agreement
require that consolidated total debt, consolidated net worth, and the ratio of
earnings to cash interest expense be maintained at certain designated levels.
All outstanding shares of common stock are fully paid and not liable to
further calls or assessment by us.
PREFERRED STOCK
Our board of directors is authorized, without further vote or action by
the holders of our common stock, to issue by resolution an aggregate of
2,000,000 shares of preferred stock. These shares of preferred stock may be
issued in one or more series as established from time to time by our board of
directors. Our board also is authorized to fix the number of shares and the
designation or title of each series of preferred stock prior to the issuance of
any shares of that series. Regarding each class or series of preferred stock,
our board will fix the voting powers which may be full or limited, or there may
be no voting powers. Our board will also determine the preferences and relative,
participating, optional or other special rights and qualifications, limitations
or restrictions, of each series of preferred stock. Our board is further
authorized to increase or decrease the number of shares of any series subsequent
to the issuance of shares of that series, but not below the number of shares of
the class or series then outstanding.
No shares of preferred stock are presently outstanding and we have no
plans to issue a new series of preferred stock. It is not possible to state the
effect of the authorization and issuance of any series of preferred stock upon
the rights of the holders of common stock until our board of directors
determines the specific terms, rights and preferences of a series of preferred
stock. However, possible effects might include restricting dividends on the
common stock, diluting the voting power of the common stock or impairing the
liquidation rights of the common stock without further action by holders of
common stock. In addition, under some circumstances, the issuance of preferred
stock may render more difficult or tend to discourage a merger, tender offer or
proxy contest, the assumption of control by a holder of a large block of our
securities or the removal of incumbent management, which could thereby depress
the market price of our common stock.
RIGHTS AGREEMENT
In March 1988, we paid a dividend of one preferred share purchase right
on each outstanding share of common stock pursuant to a rights agreement. Each
right entitles the holder to purchase from us one one-hundredth of a share of
participating stock, $1.00 par value, for a price of $50, subject to adjustment.
Although the rights are not intended to prevent a takeover of Arrow at a full
and fair price, they may have certain anti-takeover effects. They may deter an
attempt to acquire Arrow in a manner which seeks to deprive our shareholders of
the full and fair value of their investment and may deter attempts by
significant shareholders to take advantage of Arrow and its shareholders through
certain self-dealing transactions. The rights may cause substantial dilution to
a person or group that acquires or attempts to acquire Arrow without the rights
being redeemed by the board of directors. Accordingly, the rights should
encourage any potential acquirer to negotiate with our board of directors.
Unless approval is first obtained from our board of directors, the rights may
deter transactions, including tender offers, which the majority of shareholders
may believe are beneficial to them.
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DESCRIPTION OF WARRANTS
We have described below the general terms and provisions of the debt
warrants and equity warrants to which a prospectus supplement may relate. We
will describe the particular terms of any debt warrants and equity warrants
offered by any prospectus supplement in the prospectus supplement relating to
such debt warrants or equity warrants.
GENERAL
We may issue debt warrants and equity warrants, evidenced by warrant
certificates under a warrant agreement, independently or together with any debt
securities, preferred stock or common stock. The warrants may be transferable
with or separate from such securities. If we offer debt warrants, the applicable
prospectus supplement will describe the terms of the debt warrants, including
the following: (i) the offering price, if any, including the currency, or
currency unit in which such price will be payable; (ii) the designation,
aggregate principal amount and terms of the offered debt securities with which
the debt warrants are issued and the number of debt warrants issued with each
such offered debt security; (iii) if applicable, the date on or after which the
debt warrants and the related offered debt securities will be separately
transferable; (iv) the designation, aggregate principal amount and terms of debt
securities purchasable upon exercise of one debt warrant and the price or prices
at which, and the currency, or currency unit in which such principal amount of
debt securities may be purchased upon exercise; (v) the date on which the right
to exercise the debt warrants commences and the date on which such right
expires; (vi) any U.S. Federal income tax consequences; (vii) whether the debt
warrants represented by the warrant certificates will be issued in registered or
bearer form or both; and (viii) any other material terms of the debt warrants.
If we offer equity warrants, the applicable prospectus supplement will describe
the terms of the equity warrants, including the following: (i) the offering
price, if any, including the currency or currency unit in which such price will
be payable; (ii) the designation of any series of preferred stock purchasable
upon exercise of the equity warrants; (iii) the number of shares of preferred
stock or common stock purchasable upon exercise of one equity warrant, and the
price or prices at which, and the currency, or currency unit in which such
shares may be purchased upon exercise; (iv) the date on which the right to
exercise the equity warrants and the date on which such right expires; (v) any
U.S. Federal income tax consequences; (vi) whether the equity warrants
represented by the warrant certificate will be issued in registered or bearer
form or both; (vii) whether the equity warrants or the underlying preferred
stock or common stock will be listed on any national securities exchange; and
(viii) any other material terms of the equity warrants. In addition, if we sell
any debt warrants or equity warrants for any foreign currency or currency units,
the restrictions, elections, tax consequences, specific terms and other
information with respect to such issue will be specified in the applicable
prospectus supplement.
Warrant certificates, if any, may be exchanged for new warrant
certificates of different denominations and may (if in registered form) be
presented for registration of transfer at the corporate trust office of the
warrant agent, which will be listed in the applicable prospectus supplement, or
at such other office as may be set forth therein. Warrantholders do not have any
of the rights of holders of debt securities (except to the extent that the
consent of warrantholders may be required for certain modifications of the terms
of the indenture under which the series of offered debt securities issuable upon
exercise of the warrants to be issued) or preferred or common stockholders and
are not entitled to payments of principal and interest, if any, on debt
securities or to dividends or other distributions made with respect to preferred
stock or common stock.
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Warrants may be exercised by surrendering the warrant certificate, if
any, at the corporate trust office or other designated office of the warrant
agent, with (i) the form of election to purchase on the reverse side of the
warrant certificate, if any, properly completed and executed, and (ii) payment
in full of the exercise price, as set forth in the applicable prospectus
supplement. Upon exercise of warrants, the warrant agent will, as soon as
practicable, deliver the debt securities, preferred stock or common stock
issuable upon the exercise of the warrants in authorized denominations in
accordance with the instructions of the exercise warrantholder and at the sole
cost and risk of such holder. If less than all of the warrants evidenced by the
warrant certificate are exercised, a new warrant certificate will be issued for
the remaining amount of unexercised warrants, if sufficient time exists prior to
the expiration date.
PLAN OF DISTRIBUTION
GENERAL
Any of the securities offered hereby may be sold in any one or more of
the following ways from time to time:
- to or through underwriters;
- through dealers;
- directly to other purchasers; or
- through agents.
The distribution of the securities may be effected from time to time in
one or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
In connection with the sale of securities, underwriters may receive
compensation from us or purchasers of securities for whom they may act as
agents, in the form of discounts, concessions or commissions. Underwriters,
dealers and agents that participate in the distribution of securities may be
deemed to be underwriters, and any discounts or commissions received by them
from us and any profit on the resale of securities by them may be deemed to be
underwriting discounts and commissions under the Securities Act. Any person who
may be deemed to be an underwriter will be identified, and the compensation
received from us will be described, in the prospectus supplement.
During and after an offering through underwriters, the underwriters may
purchase and sell the securities in the open market. These transactions may
include overallotment and stabilizing transactions and purchases to cover
syndicate short positions created in connection with the offering. The
underwriters may also impose a penalty bid, whereby selling concessions allowed
to syndicate members or other broker-dealers for the securities sold for their
account may be reclaimed by the syndicate if those securities are repurchased by
the syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the securities,
which may be higher than the price that might otherwise prevail in the open
market, and, if commenced, may be discontinued at any time.
Except for our common stock, all securities, when first issued, will
have no established trading market. Any underwriters or agents to or through
whom securities are sold by us for public offering and sale may make a market in
those securities, but the underwriters or agents
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will not be obligated to do so and may discontinue any market making at any time
without notice. We cannot assure you as to the liquidity of the trading market
for any of our securities.
Under agreements which we may enter into, underwriters, dealers and
agents who participate in the distribution of securities may be entitled to
indemnification by us against or contribution toward certain liabilities,
including liabilities under the Securities Act.
DELAYED DELIVERY ARRANGEMENT
If so indicated in the prospectus supplement, we will authorize
underwriters or other persons acting as our agents to solicit offers by certain
institutions to purchase debt securities from us pursuant to contracts providing
for payment and delivery on a future date. Institutions with which those types
of contracts may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and others, but in all cases will be subject to our approval. The
obligations of any purchaser under any of those types of contracts will be
subject to the condition that the purchase of the securities will not at the
time of delivery be prohibited under the laws of any jurisdiction to which the
purchaser is subject. The underwriters and agents will not have any
responsibility in respect of the validity or performance of those contracts.
VALIDITY OF SECURITIES
The validity of the securities offered by this prospectus will be
passed upon for us by Milbank, Tweed, Hadley & McCloy LLP, New York, New York.
EXPERTS
The consolidated financial statements at December 31, 1999 and 1998,
and for each of the three years in the period ended December 31, 1999, appearing
in our Annual Report on Form 10-K for the fiscal year ended December 31, 1999
and incorporated by reference herein, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report dated February 16, 2000
incorporated in this prospectus by reference and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The audited historical financial statements of the Wyle Electronics
Group incorporated in this Prospectus by reference to Arrow Electronics, Inc's
Form 8-K dated September 1, 2000 have been so incorporated in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated costs and expenses, other
than the underwriting discounts and commissions, payable by Arrow Electronics,
Inc. (the "Company") in connection with the sale of the securities.
AMOUNT TO
BE PAID
-------
SEC registration fee................................................... $528,000
Printing expenses...................................................... 75,000
Legal fees and expenses................................................ 200,000
Accounting fees and expenses........................................... 20,000
Rating agency fees..................................................... 5,000
Blue Sky fees and expenses (including counsel)......................... 10,000
Miscellaneous expenses................................................. 62,000
--------
Total......................................................... $900,000
========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 9 of the Company's Certificate of Incorporation permits the
indemnification of officers and directors under certain circumstances to the
full extent that such indemnification may be permitted by law.
Such rights of indemnification are in addition to, and not in
limitation of, any rights to indemnification to which any officer or director of
the Registrant is entitled under the Business Corporation Law of the State of
New York (Sections 721 through 726), which provides for indemnification by a
corporation of its officers and directors under certain circumstances as stated
in the Business Corporation Law and subject to specified limitations set forth
in the Business Corporation Law.
The Company also maintains directors' and officers' liability insurance
coverage which insures directors and officers of the Company against certain
losses arising from claims made, and for which the Company has not provided
reimbursement, by reason of their being directors and officers of the Company or
its subsidiaries.
ITEM 16. EXHIBITS
The following documents are filed as exhibits to this Registration
Statement, including those exhibits incorporated by reference to a prior filing
of the Company under the Securities Act or the Exchange Act as indicated in
parentheses:
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ -------------------
1.1 Underwriting Agreement (Common Stock).*
1.2 Underwriting Agreement (Preferred Stock).*
1.3 Underwriting Agreement (Debt Securities).*
1.4 Underwriting Agreement, dated as of February [ ], 2001, between Arrow
Electronics, Inc. and Morgan Stanley & Co. Incorporated and the
other underwriters named therein.***
3.1 Restated Certificate of Incorporation of Arrow
Electronics, Inc, as amended (filed as
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Exhibits 3(a)(i) and 3(a)(ii) to the Annual Report of Arrow
Electronics, Inc. on Form 10-K for the year ended December 31, 1999
(File No. 1-4482), and incorporated herein by this reference
thereto).
By-Laws of Arrow Electronics, Inc., as amended (filed as Exhibit
3(b) to the Annual Report of Arrow Electronics, Inc. on Form 10-K
for the year ended December 31, 1999 (File No. 1-4482), and
incorporated herein by this reference thereto).
3.2 Certificate of Designations for Preferred Stock.***
3.3 Rights Agreement dated as of March 2, 1988, as amended (filed as
Exhibits 4(a)(i) through 4(a)(vi) to the Annual Report of Arrow
Electronics, Inc. on Form 10-K for the year ended December 31, 1999
(File No. 1-4482), and incorporated herein by this reference
thereto).
4.1 Indenture between Arrow Electronics, Inc. and The Bank of New York
(formerly, Bank of Montreal Trust Company), as trustee, dated as of
January 15, 1997 (filed as Exhibit 4(b)(i) to the Annual Report of
Arrow Electronics, Inc. on Form 10-K for the year ended December
31, 1999 (File No. 1-4482), and incorporated herein by this
reference thereto).
4.2 Supplemental Indenture relating to the Zero Coupon Convertible
Senior Debentures due 2021.***
4.3 Form of Subordinated Indenture between Arrow Electronics, Inc. and
[________________] as trustee, dated as of [_____________], 200[ ].*
4.4 Form of Warrant Agreement for Debt Securities (including form of
Warrant Certificate).*
4.5 Form of Warrant Agreement for Preferred Stock (including form of
Warrant Certificate).*
4.6 Form of Warrant Agreement for Common Stock (including form of Warrant
Certificate).*
5.1 Opinion of Milbank, Tweed, Hadley & McCloy LLP with respect to the
validity of securities being offered by Arrow Electronics, Inc.*
12.1 Statement regarding computation of consolidated ratios of earnings
to fixed charges.**
23.1 Consent of Milbank, Tweed, Hadley & McCloy LLP (included in Exhibit
5.1).*
23.2 Consent of Ernst & Young LLP, independent auditors.*
23.3 Consent of PricewaterhouseCoopers LLP, independent auditors.*
24 Power of Attorney.**
25.1 Statement of Eligibility on Form T-1 under the Trust Indenture Act
of 1939, as amended, of The Bank of New York, as trustee, under
indenture between Arrow Electronics, Inc. and the trustee dated as
of January 15, 1997.**
25.2 Statement of Eligibility on Form T-1 under the Trust Indenture Act
of 1939, as amended, of [_______________], as trustee, under the
indenture between Arrow Electronics, Inc. and the trustee dated as
of [_____________], 200[ ].***
________________________
* Filed herewith
** Previously filed
*** To be filed by amendment or by Form 8-K
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ITEM 17. UNDERTAKINGS
The registrants hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(a) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Securities and Exchange Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more
than a 20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
registration statement;
(c) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that paragraphs (1)(a) and (1)(b) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Securities and
Exchange Commission by the registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of this offering.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this registration statement as of the time it was declared effective.
(5) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(6) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report pursuant
to Section 13(a) or Section 15(d) of the
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Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefits plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(7) To file an application for the purpose of determining the
eligibility of the trustee to act under subsection (a) of Section 310 of the
Trust Indenture Act in accordance with the rules and regulations prescribed by
the Commission under Section 305(b)(2) of the Act.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused Amendment No. 1 to this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Melville, New York, on February 13, 2001.
ARROW ELECTRONICS, INC.
By: /s/ Robert E. Klatell
______________________________
Robert E. Klatell
Executive Vice President
Pursuant to the requirements of the Securities Act of 1933, Amendment
No. 1 to this registration statement has been signed by the following persons
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Stephen P. Kaufman*
___________________________ Chairman of the Board February 13, 2001
Stephen P. Kaufman
/s/ Francis M. Scricco*
___________________________ President and Chief Executive Officer February 13, 2001
Francis M. Scricco (Principal Executive Officer)
/s/ Robert E. Klatell
___________________________ Executive Vice President, Secretary, and February 13, 2001
Robert E. Klatell Director
/s/ Sam R. Leno*
___________________________ Senior Vice President February 13, 2001
Sam R. Leno (Principal Financial Officer)
/s/ Paul J. Reilly*
___________________________ Vice President - Finance February 13, 2001
Paul J. Reilly (Principal Accounting Officer)
/s/ Daniel W. Duval*
___________________________ Director February 13, 2001
Daniel W. Duval
II-5
74
___________________________ Director
Carlo Giersch
/s/ John N. Hanson *
___________________________ Director February 13, 2001
John N. Hanson
___________________________ Director
Roger King
/s/ Karen Gordon Mills *
___________________________ Director February 13, 2001
Karen Gordon Mills
/s/ Barry W. Perry *
___________________________ Director February 13, 2001
Barry W. Perry
/s/ Richard S. Rosenbloom *
___________________________ Director February 13, 2001
Richard S. Rosenbloom
/s/ John C. Waddell *
___________________________ Director February 13, 2001
John C. Waddell
* By Robert E. Klatell, as attorney-in-fact
/s/ Robert E. Klatell
---------------------
Robert E. Klatell
attorney-in-fact for the individuals as indicated
II-6
75
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ -------------------
1.1 Underwriting Agreement (Common Stock).*
1.2 Underwriting Agreement (Preferred Stock).*
1.3 Underwriting Agreement (Debt Securities).*
1.4 Underwriting Agreement, dated as of February [ ], 2001, between
Arrow Electronics, Inc. and Morgan Stanley & Co. Incorporated and
the other underwriters named therein.***
3.1 Restated Certificate of Incorporation of Arrow Electronics, Inc, as
amended (filed as Exhibits 3(a)(i) and 3(a)(ii) to the Annual Report
of Arrow Electronics, Inc. on Form 10-K for the year ended December
31, 1999 (File No. 1-4482), and incorporated herein by this
reference thereto).
By-Laws of Arrow Electronics, Inc., as amended (filed as Exhibit
3(b) to the Annual Report of Arrow Electronics, Inc. on Form 10-K
for the year ended December 31, 1999 (File No. 1-4482), and
incorporated herein by this reference thereto).
3.2 Certificate of Designations for Preferred Stock.***
3.3 Rights Agreement dated as of March 2, 1988, as amended (filed as
Exhibits 4(a)(i) through 4(a)(vi) to the Annual Report of Arrow
Electronics, Inc. on Form 10-K for the year ended December 31, 1999
(File No. 1-4482), and incorporated herein by this reference
thereto).
4.1 Indenture between Arrow Electronics, Inc. and the Bank of New York
(formerly, Bank of Montreal Trust Company), as trustee, dated as of
January 15, 1997 (filed as Exhibit 4(b)(i) to the Annual Report of
Arrow Electronics, Inc. on Form 10-K for the year ended December 31,
1999 (File No. 1-4482), and incorporated herein by this reference
thereto).
4.2 Supplemental Indenture relating to the Zero Coupon Convertible Senior
Debentures due 2021.***
4.3 Form of Subordinated Indenture between Arrow Electronics, Inc. and
[________________] as trustee, dated as of [_____________], 200[ ].*
4.4 Form of Warrant Agreement for Debt Securities (including form of
Warrant Certificate).*
4.5 Form of Warrant Agreement for Preferred Stock (including form of
Warrant Certificate).*
4.6 Form of Warrant Agreement for Common Stock (including form of
Warrant Certificate).*
5.1 Opinion of Milbank, Tweed, Hadley & McCloy LLP with respect to the
validity of securities being offered by Arrow Electronics, Inc.*
12.1 Statement regarding computation of consolidated ratios of earnings
to fixed charges.**
23.1 Consent of Milbank, Tweed, Hadley & McCloy LLP (included in Exhibit
5.1).*
23.2 Consent of Ernst & Young LLP, independent auditors.*
23.3 Consent of PricewaterhouseCoopers LLP, independent auditors.*
24 Power of Attorney.**
25.1 Statement of Eligibility on Form T-1 under the Trust Indenture Act
of 1939, as amended, of the Bank of New York, as trustee, under
indenture between Arrow Electronics, Inc. and the trustee dated as
of January 15, 1997.**
25.2 Statement of Eligibility on Form T-1 under the Trust Indenture Act
of 1939, as amended, of [_______________], as trustee, under the
indenture between Arrow Electronics, Inc. and the trustee dated as
of [_____________], 200[ ].***
_____________________________
* Filed herewith
** Previously filed
*** To be filed by amendment or by Form 8-K